The Guiding Reasons Why Public Interest Entities in Europe Elect a Particular Audit Firm and Auditors versus the Cost of the Audit

Declining audit fees represent a worldwide phenomenon which draws particular attention and concerns in the audit profession. The study explores the guiding reasons of public interest entities (PIEs) in Europe when electing a particular auditor, and investigates whether these reasons are reflected on audit fees. Further, it considers the impact of the prevailing macroeconomic conditions on these reasons, and accordingly on the cost of the audit. To this end the study intends to investigate whether these guiding reasons represent a declining factor on audit fees and under which macroeconomic conditions. To achieve the study objectives, a pragmatic mixed methods research approach is adopted, comprising surveys of respondents at audit firms and PIEs, and semi-structured interviews with participants at purposively selected PIEs, in Europe. The study finds that the guiding reasons are associated with the macroeconomic conditions, and reflect PIEs’ expectations from the external audit. Ultimately, these expectations impact the cost of the audit depending on the current trends in the economy. The study proposes that the audit regulatory authorities should take actions to regulate PIEs’ expectations from the external auditors and regulate the reporting requirements of auditors and audit firms, to achieve a proper balance between the scope of the audit procedures and the cost of the audit. In this view, the study recommends audit regulatory authorities adopt guidelines for determining the cost of the audit based on the assessed audit risk and scope of audit procedures.