The determinants of audit fees and the impact of earnings quality: Evidence from UK listed firms
Creators: name: Han, Wenjin
Publisher: name: Loughborough University
Year: 2022
Subjects: Other commerce, management, tourism and services not elsewhere classified

description: There is a lack of UK audit pricing literature to review the long period of audit fees trends and investigate the impact of earnings management. This thesis focuses on UK audit pricing and the data for FTSE All-Share firms from 2001 to 2019 and integrated abnormal accruals into audit pricing models. The thesis aims to ascertain whether auditors will charge higher fees for lower abnormal accruals, which is absent from the related audit pricing literature. First, this thesis's descriptive analyses report the extremely high concentration of Big4 in the FTSE All-Share audit market and as an auditor industry specialist. However, the auditor change frequency is extremely low. The high concentration of Big 4 and rarely auditor change further raised concerns about the quality of the audits. These results have uncovered the development of the UK largest listed firms audit market in recent two decades. Secondly, the empirical analysis utilises the pooled regressions with industry-year fixed-effect and annual regressions. The primary findings of the thesis are that the Big4 premium is not significant and auditor industry specialists charge the fee premium. Also, the initial engagement discounts and audit fee recovery theory exist. Furthermore, strong evidence suggests that lower abnormal accruals lead to higher audit fees. Therefore, this thesis's empirical results indicate that abnormal accruals could be a key audit pricing determinant and a better audit quality measurement, especially for the market with a high concentration of Big 4 clients, like FTSE All-Share firms.There is a lack of UK audit pricing literature to review the long period of audit fees trends and investigate the impact of earnings management. This thesis focuses on UK audit pricing and the data for FTSE All-Share firms from 2001 to 2019 and integrated abnormal accruals into audit pricing models. The thesis aims to ascertain whether auditors will charge higher fees for lower abnormal accruals, which is absent from the related audit pricing literature. First, this thesis's descriptive analyses report the extremely high concentration of Big4 in the FTSE All-Share audit market and as an auditor industry specialist. However, the auditor change frequency is extremely low. The high concentration of Big 4 and rarely auditor change further raised concerns about the quality of the audits. These results have uncovered the development of the UK largest listed firms audit market in recent two decades. Secondly, the empirical analysis utilises the pooled regressions with industry-year fixed-effect and annual regressions. The primary findings of the thesis are that the Big4 premium is not significant and auditor industry specialists charge the fee premium. Also, the initial engagement discounts and audit fee recovery theory exist. Furthermore, strong evidence suggests that lower abnormal accruals lead to higher audit fees. Therefore, this thesis's empirical results indicate that abnormal accruals could be a key audit pricing determinant and a better audit quality measurement, especially for the market with a high concentration of Big 4 clients, like FTSE All-Share firms.