IDEAS home Printed from https://ideas.repec.org/a/eme/arjpps/v24y2011i1p79-93.html
   My bibliography  Save this article

Relative audit fees and client loyalty in the audit market

Author

Listed:
  • Magdy Farag
  • Rafik Elias

Abstract

Purpose - The purpose of this paper is to examine the stability or loyalty in the auditor‐client relationship. It explores the association between audit fees and auditor loyalty. Specifically, it investigates whether clients paying less audit fees relative to other companies in their industries are more likely to be loyal to their auditors. Design/methodology/approach - Logistic and ordinal regression analyses are used to compare loyal clients to clients that switched audit firms after controlling for factors that are expected to be associated with client loyalty. Findings - Results show that relative audit fees have a significant effect on the degree of loyalty of clients to their audit firms. Additional analysis shows that the loyalty of clients that pay higher audit fees relative to similar clients in their industry are highly affected by increases in audit fees. However, the loyalty of clients who pay lower audit fees compared to similar clients in their industry is not affected by further increases in relative audit fees. Research limitations/implications - The study does not differentiate between auditor dismissal and auditor resignation in the classification of clients that switched auditors. It also does not classify auditor switches into auditor‐initiated switches and client‐initiated switches. Practical implications - It is cost effective for clients to stay with the same audit firm. Audit firms should be careful when adjusting their audit fees from one period to another, as there is a higher probability of losing a client, when increasing the audit fees, especially if this client is already paying higher audit fees relative to similar clients. Originality/value - The findings of this study increase the understanding of how relative audit fees affect client loyalty in the audit market.

Suggested Citation

  • Magdy Farag & Rafik Elias, 2011. "Relative audit fees and client loyalty in the audit market," Accounting Research Journal, Emerald Group Publishing Limited, vol. 24(1), pages 79-93, July.
    • Handle: RePEc:eme:arjpps:v:24:y:2011:i:1:p:79-93
    DOI: 10.1108/10309611111148788
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/10309611111148788/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/10309611111148788/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/10309611111148788?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Ahmed Ebrahim, 2010. "Audit fee premium and auditor change: the effect of Sarbanes-Oxley Act," Managerial Auditing Journal, Emerald Group Publishing, vol. 25(2), pages 102-121, January.
    2. David F. Larcker & Scott A. Richardson, 2004. "Fees Paid to Audit Firms, Accrual Choices, and Corporate Governance," Journal of Accounting Research, Wiley Blackwell, vol. 42(3), pages 625-658, June.
    3. Jones, Frederick L. & Raghunandan, K., 1998. "Client risk and recent changes in the market for audit services," Journal of Accounting and Public Policy, Elsevier, vol. 17(2), pages 169-181.
    4. Ettredge, M & Greenberg, R, 1990. "Determinants Of Fee Cutting On Initial Audit Engagements," Journal of Accounting Research, Wiley Blackwell, vol. 28(1), pages 198-210.
    5. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
    6. Karla M. Johnstone & Jean C. Bedard, 2004. "Audit Firm Portfolio Management Decisions," Journal of Accounting Research, Wiley Blackwell, vol. 42(4), pages 659-690, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mark E. Pickering, 2015. "An Exploratory Study of Profit Reporting Differences of Publicly Owned Professional Service Firms and Partnerships," Australian Accounting Review, CPA Australia, vol. 25(3), pages 262-278, September.
    2. Maroun, Warren & Solomon, Jill, 2014. "Whistle-blowing by external auditors: Seeking legitimacy for the South African Audit Profession?," Accounting forum, Elsevier, vol. 38(2), pages 109-121.
    3. Karen Benson & Peter M Clarkson & Tom Smith & Irene Tutticci, 2015. "A review of accounting research in the Asia Pacific region," Australian Journal of Management, Australian School of Business, vol. 40(1), pages 36-88, February.
    4. Maroun, Warren & Atkins, Jill, 2014. "Section 45 of the Auditing Profession Act: Blowing the whistle for audit quality?," The British Accounting Review, Elsevier, vol. 46(3), pages 248-263.
    5. Maroun, Warren, 2015. "Reportable irregularities and audit quality: Insights from South Africa," Accounting forum, Elsevier, vol. 39(1), pages 19-33.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Omrane Guedhami & Jeffrey A. Pittman & Walid Saffar, 2014. "Auditor Choice in Politically Connected Firms," Journal of Accounting Research, Wiley Blackwell, vol. 52(1), pages 107-162, March.
    2. Silvia Ferramosca & Giulio Greco & Marco Allegrini, 2017. "External audit and goodwill write-off," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(4), pages 907-934, December.
    3. Roger Meuwissen & Reiner Quick, 2009. "Abschlussprüfung und Beratung - Eine experimentelle Analyse der Auswirkungen auf Unabhängigkeitswahrnehmungen deutscher Aufsichtsräte," Schmalenbach Journal of Business Research, Springer, vol. 61(4), pages 382-415, June.
    4. Katsuhiko Muramiya & Tomomi Takada, 2010. "Auditor Conservatism, Abnormal Accruals, and Going Concern Opinions," Discussion Papers 2010-64, Kobe University, Graduate School of Business Administration.
    5. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    6. Vivek Mande & Myungsoo Son, 2011. "Do audit delays affect client retention?," Managerial Auditing Journal, Emerald Group Publishing, vol. 26(1), pages 32-50, January.
    7. Lennox, Clive & Wang, Chunfei & Wu, Xi, 2023. "Delegated leadership at public accounting firms," Journal of Accounting and Economics, Elsevier, vol. 76(1).
    8. Garcia-Blandon, Josep & Argiles-Bosch, Josep Maria & Castillo-Merino, David & Martinez-Blasco, Monica, 2017. "An Assessment of the Provisions of Regulation (EU) No 537/2014 on Non-audit Services and Audit Firm Tenure: Evidence from Spain," The International Journal of Accounting, Elsevier, vol. 52(3), pages 251-261.
    9. Hye‐Jeong Nam, 2018. "The Impact of Mandatory IFRS Transition on Audit Effort and Audit Fees: Evidence from Korea," Australian Accounting Review, CPA Australia, vol. 28(4), pages 512-524, December.
    10. Dennis M. López & Marshall K. Pitman, 2013. "Auditor workload compression and busy season portfolio changes – U.S. evidence," Working Papers 0216acc, College of Business, University of Texas at San Antonio.
    11. Sarowar Hossain & Jeff Coulton & Jenny Jing Wang, 2023. "Client Importance and Audit Quality at the Individual Audit Partner, Office, and Firm Levels," Abacus, Accounting Foundation, University of Sydney, vol. 59(2), pages 650-696, June.
    12. Pan, Yue & Shroff, Nemit & Zhang, Pengdong, 2023. "The dark side of audit market competition," Journal of Accounting and Economics, Elsevier, vol. 75(1).
    13. Ray Ball, 2009. "Market and Political/Regulatory Perspectives on the Recent Accounting Scandals," Journal of Accounting Research, Wiley Blackwell, vol. 47(2), pages 277-323, May.
    14. Andrew B. Jackson & Michael Moldrich & Peter Roebuck, 2008. "Mandatory audit firm rotation and audit quality," Managerial Auditing Journal, Emerald Group Publishing, vol. 23(5), pages 420-437, May.
    15. Najihah Yaacob & Ayoib Che-Ahmad, 2012. "Audit Fees after IFRS Adoption: Evidence from Malaysia," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 2(1), pages 31-46, June.
    16. Ji, Xu-dong & Lu, Wei & Qu, Wen, 2018. "Internal control risk and audit fees: Evidence from China," Journal of Contemporary Accounting and Economics, Elsevier, vol. 14(3), pages 266-287.
    17. Rani Hoitash & Udi Hoitash, 2009. "The role of audit committees in managing relationships with external auditors after SOX: Evidence from the USA," Managerial Auditing Journal, Emerald Group Publishing, vol. 24(4), pages 368-397, April.
    18. Tsipouridou, Maria & Spathis, Charalambos, 2012. "Earnings management and the role of auditors in an unusual IFRS context: The case of Greece," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 21(1), pages 62-78.
    19. Knechel, W. Robert & Thomas, Edward & Driskill, Matthew, 2020. "Understanding financial auditing from a service perspective," Accounting, Organizations and Society, Elsevier, vol. 81(C).
    20. Karla M. Johnstone & Jean C. Bedard, 2004. "Audit Firm Portfolio Management Decisions," Journal of Accounting Research, Wiley Blackwell, vol. 42(4), pages 659-690, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:arjpps:v:24:y:2011:i:1:p:79-93. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.