Audit Fee Stickiness

39 Pages Posted: 27 Feb 2011 Last revised: 13 Feb 2013

See all articles by Charl de Villiers

Charl de Villiers

University of Auckland - Department of Accounting and Finance

David Hay

University of Auckland - Business School

Zhizi (Janice) Zhang

University of Auckland

Date Written: February 11, 2013

Abstract

We examine audit fee stickiness applying an approach from management accounting research. We explore the price behavior of audit fees in response to changes in the variables that are usually seen as their determinants, such as size, complexity, and risk in order to examine audit fee stickiness and the competitiveness of the market for audit services. We find that audit fees are sticky – audit fees do not immediately or fully adjust to changes in their determinants. Audit fees also respond to changes leading to an increase more quickly than they respond to changes leading to a decrease. The difference between positive and negative fee adjustments declines over periods longer than one year, and is no longer significant when four year periods are considered. This suggests that the audit market is competitive, at least in the medium term. Our study helps to explain why the audit fee model does not fully explain the level of audit fees; why audit fees are more likely to be too high than too low; and why auditor switches are commonly associated with larger changes in audit fees.

Keywords: Audit market, Audit fees, Cost behavior, Stickiness

JEL Classification: L41, L89, M41

Suggested Citation

de Villiers, Charl and Hay, David and Zhang, Zhizi (Janice), Audit Fee Stickiness (February 11, 2013). Available at SSRN: https://ssrn.com/abstract=1771045 or http://dx.doi.org/10.2139/ssrn.1771045

Charl De Villiers (Contact Author)

University of Auckland - Department of Accounting and Finance ( email )

Private Bag 92019
Auckland 1001
New Zealand

David Hay

University of Auckland - Business School ( email )

12 Grafton Rd
Auckland, 1010
New Zealand

Zhizi (Janice) Zhang

University of Auckland ( email )

Private Bag 92019
Auckland Mail Centre
Auckland, 1142
New Zealand

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