Contingent fees for audit firms

Article Abstract:

The response of auditors and their clients to report-contingent audit contracts is analyzed with a model in which the value auditors' clients assign to a firm is affected by auditors' reports on the estimated earnings of the firm. Report-contingent contracts seem to be inherently undesirable because they seem to compromise the independence of auditors, but UK auditors are permitted to accept report-contingent contracts, and there has been pressure in the US for contingent fee contracts. Research results reveal that, while auditors as a whole prefer a ban on contingent fees, individual auditors may seek to utilize contingent contracts, and that expanding the contracting opportunities of auditors may reduce competition in the auditing services market.

Analysis, Contingency fees

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A theory of audit partnerships: audit firm size and fees

Article Abstract:

The effect of audit firm size on audit fees is examined. An economic model is developed which uses an agency framework and takes the uncertainties of the audit process into consideration. Optimal fees for a fixed level of audit effort are derived. Risk sharing cuts agency cost, so large audit firms were found to be optimal.

Accounting firms, Accounting services

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Determinants of fee cutting on initial audit engagements

Article Abstract:

The mean and median reductions in fees for the initial auditing engagements reported by selected firms during the period 1983-87 were 25% and 23% respectively. A significant variation in the reductions was apparent.

Accountants

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