Dynamics of Audit Pricing at the Office Level: Evidence from Relative Audit Fees and Subsequent Audit Pricing

• In Event: Audit Office Pricing and Quality

Abstract

This study empirically investigates the dynamics of audit pricing at the local office level. Specifically, it examines the extent to which a client’s audit fees relative to its peers within the same office influences subsequent pricing of audit services. We find evidence of a significant association between clients’ relative audit fee positions and subsequent period audit pricing. Our results show that relative audit fee positions are negatively associated with the magnitudes of subsequent changes in audit fees. Further, we find that this inverse relationship is probably driven by a reduction in unit audit price for clients with relative high audit that are able to negotiate unit audit fee reductions.
Our study suggests that within-audit office relative audit fee positions may play an important role on the decision-making process of audit pricing.

Author

• Xudong Li, Monmouth University