Big 4 Audit Fee Premiums for National and City-Specific Industry Leadership in the United Kingdom: Additional Evidence

International Journal of Auditing, Forthcoming

Posted: 26 Sep 2017

See all articles by Khairul Mohd Kharuddin

Khairul Mohd Kharuddin

Loughborough University - School of Business and Economics

Ilias G. Basioudis

Aston University - Aston Business School

Date Written: September 24, 2017

Abstract

This study investigates the relationship between Big 4 auditor industry specialisation and audit pricing in the U.K. in a period of many changes having taken place in the market for audit services. Using a large dataset between 2004 and 2011, our empirical results show a significantly higher fee premium for the Big 4 firms who are national industry leaders as compared to city-specific industry leaders, and that the fee premium for industry leadership is only earned by the city-specific industry leaders if and when they are also the national leaders. Neither the national nor city level industry leadership alone is priced anymore in the U.K. audit market. These findings hold for the pre- and the post-GFC period only and for a number of additional analyses. The evidence suggests that the Big 4 industry leadership in the U.K. has moved away from the previously documented premium for the Big 4 city-specific industry leadership alone, and is now driven solely by the joint Big 4 industry expertise at the national and city-specific levels concurrently. The study’s results indicate that there is a progression from city-specific industry expertise to national-specific industry expertise, and they imply that there has been an improvement in the sharing and transferability of industry knowledge and expertise among the city offices of the Big 4 firms in the U.K. in the period of investigation.

Keywords: Audit Fees, Independence, External Audit, Auditor Reputation, Audit Market

JEL Classification: M42

Suggested Citation

Mohd Kharuddin, Khairul and Basioudis, Ilias G., Big 4 Audit Fee Premiums for National and City-Specific Industry Leadership in the United Kingdom: Additional Evidence (September 24, 2017). International Journal of Auditing, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3042306

Khairul Mohd Kharuddin

Loughborough University - School of Business and Economics ( email )

Epinal Way
Leics LE11 3TU
Leicestershire
United Kingdom

Ilias G. Basioudis (Contact Author)

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, B47ET
United Kingdom

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