Public Audit Oversight and Audit Pricing: Evidence from the EU
European Accounting Review, forthcoming
51 Pages Posted: 4 Jun 2020 Last revised: 31 Oct 2022
Date Written: October 29, 2022
Abstract
We examine the audit pricing consequences of auditor inspections under the public oversight regime in the EU. Employing a staggered differences-in-differences design, we document an inspections audit fee increase during the post-inspection period when companies’ auditors are subject to inspections by the national Public Oversight Body (POB). However, this effect masks significant cross-sectional variation. Specifically, we find that the increase in audit fees attributable to inspections is concentrated among POBs with more adequate human resources, where inspections last longer or occur both at the auditor’s and the regulator’s premises. Also, the effect of inspections on audit fees is evident only when the POB prohibits inspectors from joining an audit firm immediately after their departure or when the oversight system is funded by multiple stakeholders. Overall, our findings suggest that audit costs as reflected in audit fees increase for clients of inspected auditors but only when inspections are more laborious, independent, and rigorous.
Keywords: POB, public oversight; inspections; audit fees
JEL Classification: G18, G38, K22, M41, M42, M48
Suggested Citation: Suggested Citation