Are Client-Perceived Audit Firm Reputation and Audit Team Attributes Associated with Bign Audit Fees?

Abstract

This study examines whether client-perceived audit firm reputation and audit team attributes are associated with audit fees of 213 BigN clients. After controlling for auditor industry specialization and other factors related to audit fees, client-perceived audit firm reputation are positively associated with audit fees. This suggests BigN firms do derive fee premium from differentiation dimensions other than industry specialization (Chan, Ferguson, Simunic and Stokes 2001; Gramling and Stone 2001; Mayhew and Wilkins 2003). Among client-perceived audit team attributes, only auditing expertise is significantly and negatively associated with audit fees. We conclude that BigN firms can exploit client-perceived firm reputation to earn a fee premium vis-a-vis other BigN firms.

Keywords: Differentiation within BigN group, audit fee premium, credibility and service attributes of audit

JEL Classification: M41, M49