Attestation, Upcharges, and Nonassurance Services: An Empirical Review of Assurance Pricing Around Local Government Organization Form in a Municipal Market

• In Event: Break with Research and Education Poster Forum

Abstract

This study provides an empirical analysis of bundled auditor services in a governmental market. We first explore differences in demand for audit services depending on governmental organizational form and find increased use of a market leading auditor and use of some of the largest audit firms in the country. Then, using a unique data set, we examine the pricing for auditor services including bookkeeping fees, financial statement preparation fees, and the likelihood of the municipality being upcharged on their audit contract. The results suggest that nonassurance services are indirectly associated with attestation pricing. Additionally, the evidence suggests governments that are upcharged on their base contract tend to have greater initial audit pricing, suggesting that upcharges are not used in response to a low-balled bid but rather assessed in response to client deficiencies discovered in the audit process. Auditor changes indicate that governments are sensitive to billing for attestation and nonassurance services and that through changing auditors, governments do not necessarily select market leaders. Evidence is found of greater demand for fee premium specialist auditors with other auditors discounting, regardless of their expertise. Demand for types of nonassurance services and upcharges also varies with auditor specialization and a government’s auditor retention

Authors

• Alfred Yebba, SUNY-Binghamton

• Randal J Elder, University of North Carolina Greensboro