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Audit fee determinants and the large auditor premium in 1900

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  • Derek Matthews
  • Michael Peel

Abstract

In recent years there has been increasing interest among researchers in the accounting field in the issue of audit fees. This article applies the methodology of these studies to a set of UK company data for the year 1900. The problems of collecting the historical data are discussed, and a descriptive treatment of the audit market 100 years ago and the similarities and differences with today are outlined. A sample of 121 quoted companies in 1900, which declared their audit fees along with other data in their published accounts, is utilised and the determination of these fees is modelled. The results with regard to the importance of size, complexity, industrial sector, the profitability of the auditee and the start-up costs of the first years of the audit were found to be in line with contemporary findings. The main factor out of step with existing research is that the leading auditors in 1900 did not charge a premium as the present day Big 4 (formerly 6) appear to do. This is explained by the fact that big firms today offer a wider, international, and therefore perhaps more valuable set of audit services than did the largest firms in 1900.

Suggested Citation

  • Derek Matthews & Michael Peel, 2003. "Audit fee determinants and the large auditor premium in 1900," Accounting and Business Research, Taylor & Francis Journals, vol. 33(2), pages 137-155.
    • Handle: RePEc:taf:acctbr:v:33:y:2003:i:2:p:137-155
    DOI: 10.1080/00014788.2003.9729640
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    References listed on IDEAS

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    1. Palmrose, Zv, 1986. "The Effect Of Nonaudit Services On The Pricing Of Audit Services - Further Evidence," Journal of Accounting Research, Wiley Blackwell, vol. 24(2), pages 405-411.
    2. Matthews, Derek & Anderson, Malcolm & Edwards, John Richard, 1998. "The Priesthood of Industry: The Rise of the Professional Accountant in British Management," OUP Catalogue, Oxford University Press, number 9780198289609.
    3. Christopher K.M. Pong, 1999. "Auditor Concentration: A Replication and Extension for the UK Audit Market 1991–1995," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(3‐4), pages 451-475, April.
    4. Francis, Jere R., 1984. "The effect of audit firm size on audit prices : A study of the Australian Market," Journal of Accounting and Economics, Elsevier, vol. 6(2), pages 133-151, August.
    5. Michael J. Peel & Mark A. Clatworthy, 2001. "The Relationship Between Governance Structure and Audit Fees Pre‐Cadbury: some empirical findings," Corporate Governance: An International Review, Wiley Blackwell, vol. 9(4), pages 286-297, October.
    6. Simunic, Da, 1980. "The Pricing Of Audit Services - Theory And Evidence," Journal of Accounting Research, Wiley Blackwell, vol. 18(1), pages 161-190.
    7. Christopher K.M. Pong, 1999. "Auditor Concentration: A Replication and Extension for the UK Audit Market 1991-1995," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(3-4), pages 451-475.
    8. Michael Firth, 1997. "The Provision of Non-audit Services and the Pricing of Audit Fees," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(3), pages 511-525.
    9. Francis, Jr & Stokes, Dj, 1986. "Audit Prices, Product Differentiation, And Scale Economies - Further Evidence From The Australian Market," Journal of Accounting Research, Wiley Blackwell, vol. 24(2), pages 383-393.
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    Cited by:

    1. Mark A. Clatworthy & Michael J. Peel, 2007. "The Effect of Corporate Status on External Audit Fees: Evidence From the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(1‐2), pages 169-201, January.
    2. David C. Hay & W. Robert Knechel & Norman Wong, 2006. "Audit Fees: A Meta†analysis of the Effect of Supply and Demand Attributes," Contemporary Accounting Research, John Wiley & Sons, vol. 23(1), pages 141-191, March.

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