'Two Big' or Not 'Two Big'? - The Consequences of Appointing Two Big 4 Auditors on Audit Pricing in a Joint Audit Setting

55 Pages Posted: 14 Jun 2012 Last revised: 27 Sep 2012

See all articles by Sophie Audousset-Coulier

Sophie Audousset-Coulier

Concordia University, Quebec - John Molson School of Business

Date Written: August 1, 2012

Abstract

The aim of this paper is to use the uniqueness of the French audit environment to conduct an in-depth study of the audit pricing issues linked with the requirement to hire two independent auditors (joint-audit) and with long term audit mandates (6-year appointment). I use a model derived from Simunic’s (1980) seminal work to examine to what extent audit fees are influenced by the number of Big 4 joint auditors (zero, one, or two) and how a long-term audit mandate affects audit fees. After controlling for well-known audit client firm-specific drivers of audit fees (firm size, complexity, specific risk, and governance characteristics) and for auditor selection, the paper shows that the decision to hire two Big 4 auditors as joint auditors does not require the payment of a higher Big 4 premium compared to the choice of one Big 4 paired with a smaller auditor, other things being equal. The choice of two Big 4 auditors thus appears to be a rational economic choice for large and international firms. The paper also shows that the 6-year audit mandate can have a non-optimal effect on the audit fees and lead to the payment of higher fees during the second year of appointment.

Keywords: audit pricing, joint audit, long-term audit mandate, Big 4 premium, low-balling, auditor selection

JEL Classification: M41, G38

Suggested Citation

Audousset-Coulier, Sophie, 'Two Big' or Not 'Two Big'? - The Consequences of Appointing Two Big 4 Auditors on Audit Pricing in a Joint Audit Setting (August 1, 2012). Available at SSRN: https://ssrn.com/abstract=2083871 or http://dx.doi.org/10.2139/ssrn.2083871

Sophie Audousset-Coulier (Contact Author)

Concordia University, Quebec - John Molson School of Business ( email )

Montreal, Quebec H3G 1M8
Canada
001 514 848 2424 ext 2021 (Phone)

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