Effects of Initial Audit Fee Discounts on Audit Quality: Evidence from Germany

17 Pages Posted: 18 Feb 2014

See all articles by Patrick Krauß

Patrick Krauß

Handelshochschule Leipzig (HHL) - Leipzig Graduate School of Management

Benedikt Quosigk

University of Texas at San Antonio

Henning Zülch

HHL Leipzig Graduate School of Management

Date Written: March 2014

Abstract

We examine the presence and magnitude of initial audit engagement fee cutting and its potential effect on audit quality in Germany using a sample of 992 firm‐year observations from 2005 through 2011. Our results show systematic fee cutting for initial audit engagement years in Germany. Despite significant audit fee differences between initial and subsequent audit engagement years, we do not find differences in audit quality. Overall, our findings support prior empirical studies, suggesting that low‐balling is merely a natural response of auditors to competitive audit market conditions and does not necessarily impair auditor independence. In the wake of the on‐going discussion in the European Union regarding the control of appointment, remuneration, and duration of audit engagements to curb threats to auditor independence, our findings do not support the implementation of audit market price controls through governmental regulators.

Keywords: audit pricing, low‐balling, audit fee discounts, audit quality, auditor independence, auditor effort, German audit market

Suggested Citation

Krauß, Patrick and Quosigk, Benedikt and Zülch, Henning, Effects of Initial Audit Fee Discounts on Audit Quality: Evidence from Germany (March 2014). International Journal of Auditing, Vol. 18, Issue 1, pp. 40-56, 2014. Available at SSRN: https://ssrn.com/abstract=2397492 or http://dx.doi.org/10.1111/ijau.12010

Patrick Krauß (Contact Author)

Handelshochschule Leipzig (HHL) - Leipzig Graduate School of Management

No Address Available

Benedikt Quosigk

University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States

Henning Zülch

HHL Leipzig Graduate School of Management ( email )

Jahnallee 59
Leipzig, Saxony D-04109
Germany
+49(341)9851701 (Phone)
+49(341)9851702 (Fax)

HOME PAGE: http://www.hhl.de/faculty-research/faculty/accounting-auditing/

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