Are Joint Audits Associated with Higher Audit Fees?

Abstract:     
In its Green Paper on audit policy (October 2010), the European Commission suggested that joint audits might be a way of improving the audit market in Europe. However, some parties consider that joint audits are not an efficient solution because they would significantly increase audit fees paid by companies. We compare audit fees paid in 2007, 2008 and 2009 by listed companies in France, where joint audits are mandatory, with those paid by Italian and British companies. We find significantly higher audit fees in France after controlling for well documented auditor, client and engagement attributes and in particular for auditor switching and non-audit fees, which vary across countries. Theory suggests that audit fees in countries with high investor protection, like the UK, should be greater than those in countries with low investor protection like France and Italy. In our matched samples, audit fees are about 40% higher in France compared to either the UK or Italy. Further, higher audit fees are not paid for higher audit quality, we do not find differential levels of earnings management (a proxy for audit quality).

Number of Pages in PDF File: 42

Keywords: Joint Audits, Audit fees, Legal regime, France, UK, Italy

JEL Classification: M40, K20, G38

working papers series