Audit Fees, Nonaudit Fees, and Auditor Quality: An Analysis from the Indian Perspective

Abstract

The purpose of this paper is to extend the work done by Simon et al. (1995) in two ways: (1) To determine whether there is a Big Four audit fee premium in the audit market in India; and (2) To determine whether there is significant association between audit fees and nonaudit fees in India. This study has important implications for audit markets in developing countries. The results are consistent with our expectations and prior research. Consistent with prior research, we find a positive association between nonaudit services and audit services due to possible knowledge spillovers from one to the other. Local Indian audit firms might want to think of pricing strategies to either maintain or increase their market share in the audit market. They might also consider increasing the scope of nonaudit services offered to their present clients to take advantage of the knowledge spillover effect; evidenced in the present study.

Keywords: audit fees, nonaudit fees, auditor quality, India

JEL Classification: K22, L5, M4, O53