Experimental evidence of differential auditor pricing and reporting strategies

Article Abstract:

A control set comprised of human subjects acting as auditors with robot clients and a treatment set consisting of auditors and clients as human subjects were used to test the competitive equilibrium predictions of an audit pricing and independence model. Under the multi-period model, the auditor and the client have a price-independence relationship, wherein auditors charge and clients pay high premium prices, and the auditor compromises independence to the client's advantage. It was found that under both agreement and disagreement scenarios, auditors practice lowballing, or establishing initial fees below expected current costs. Auditors were found to only impair their independence in the Disagree markets. New auditors were also found to resort to price undercutting, or setting fees below costs with no opportunity to earn future quasi-rents, to discipline incumbent auditors.

Prices and rates, Pricing, Beliefs, opinions and attitudes

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Evidence of regulatory noncompliance with SEC disclosure rules on auditor changes

Article Abstract:

A study was conducted to examine far-reaching noncompliance with SEC regulations that mandate prompt disclosure of auditor changes and the factors that could influence compliance. Data were collected from 3,000 Form 8-K reports on auditor change filed from 1988 to 1993. Results showed that over 35% did not comply with the rules during this timeframe. However, filing delays have systematically gone down after the implementation of Financial Reporting Release No. 34 and the AICPA SEC Practice Section independent notification requirement. Findings also showed that registrant and auditor competency were significant determinants of noncompliance and filing delay. The presence of financial trouble, the intent to issue securities in the future and the ability to delay the auditor change per se also influenced reporting timeliness.

Laws, regulations and rules, United States. Securities and Exchange Commission, Disclosure statements (Accounting)

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An analysis of forced auditor change: the case of former Arthur Andersen clients

Article Abstract:

The factors involved in choosing an new auditing firm were studied in former Arthur Andersen (AA) clients who were forced to find a new auditor following AA's collapse. It was found that companies consider both switching and agency costs in selecting a new auditor. Findings also suggest that mandatory auditor rotation did not necessarily improve earnings quality.

Science & research, Capital funds & cash flow, Venture Analysis, United States, Evaluation, Accounting and auditing, Influence, Accounting firms, Accounting services, Business enterprises, Arthur Andersen L.L.P., Report

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