The Role of Competitive Bidding in the Market for Initial Attest Engagements

42 Pages Posted: 13 Jan 2000

See all articles by Jean C. Bedard

Jean C. Bedard

Bentley University - Department of Accountancy

Michael Ettredge

University of Kansas - Accounting and Information Systems Area

Karla M. Zehms

University of Wisconsin - Madison - Department of Accounting and Information Systems

Date Written: April 2001

Abstract

This paper investigates the effects of competitive bidding on clients' and service providers' decisions. We examine the determinants of clients' decisions to choose private negotiations (i.e., only one bidder) versus competitive bidding (i.e., multiple bidders) and the effect of that choice on the bidding firm's engagement planning and bid pricing decisions. The data used to conduct this examination include actual evaluations of prospective clients for whom the participating firm's personnel decided to issue an engagement bid during 1997 and 1998. Our findings reveal various cost-benefit tradeoffs involved in clients' decisions to choose private negotiations versus competitive bidding. Results also show that competitive bidding is associated with an increase in planned engagement effort, an increase in the use of quality-enhancing personnel allocations, and reduced fee rates.

Keywords: Competitive bidding; Negotiation; Audit planning; Audit pricing

JEL Classification: M49, D40

Suggested Citation

Bedard, Jean C. and Ettredge, Michael L. and Zehms, Karla M., The Role of Competitive Bidding in the Market for Initial Attest Engagements (April 2001). Available at SSRN: https://ssrn.com/abstract=197868 or http://dx.doi.org/10.2139/ssrn.197868

Jean C. Bedard

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2410 (Phone)
781-891-2896 (Fax)

Michael L. Ettredge (Contact Author)

University of Kansas - Accounting and Information Systems Area ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States
785-864-7537 (Phone)
785-864-5328 (Fax)

Karla M. Zehms

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-234-1052 (Phone)
608-265-5031 (Fax)

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