Client Acceptance and Engagement Pricing Following Auditor Resignations in Family Firms

Posted: 26 Jul 2016

See all articles by Samer Khalil

Samer Khalil

Murray State University

Mohamad Mazboudi

American University of Beirut

Date Written: July 25, 2016

Abstract

This paper investigates whether auditors’ client acceptance and pricing decisions following the resignation of the incumbent auditor in family firms are significantly different from those in non-family firms. Relying on the auditing literature (client acceptance and audit pricing) and using insights from the agency theory, we document that successor auditors incorporate a firm’s ownership structure into their acceptance and pricing decisions following the resignation of the incumbent auditor. Big4 auditors are more likely to serve as successor auditors following auditor resignations in family firms as opposed to non-family firms. The changes in audit fees following auditor resignations in family firms, however, are significantly smaller than those in non-family firms. These results hold when we account for whether a family firm is managed by a founder, a descendant, or by a professional manager, and when we use the percentage of shares held by the family members as another proxy for family ownership. Additional analysis further demonstrates that the likelihood of financial restatements in family firms in the post-resignation period are significantly lower than those in non-family firms. Overall, our findings suggest that Big4 auditors perceive family firms from whom the incumbent auditors resigned as being less risky than their non-family counterparts.

Keywords: Family Firm; Auditor Resignations

JEL Classification: M41, M42

Suggested Citation

Khalil, Samer K. and Mazboudi, Mohamad, Client Acceptance and Engagement Pricing Following Auditor Resignations in Family Firms (July 25, 2016). Auditing: A Journal of Practice & Theory, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2814115

Samer K. Khalil (Contact Author)

Murray State University ( email )

1375 Chestnut St.
Murray, KY 42071-0009
United States

Mohamad Mazboudi

American University of Beirut ( email )

Olayan School of Business
PO Box 11-0236 Riad El Solh
Beirut
Lebanon
(961)1350000 (Phone)

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