Auditors’ strategic audit pricing: Evidence from the pre-and post-IFRS periods

Sunhwa Choi, Youn Sik Choi, Bum Joon Kim

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

This study examines the audit pricing by the auditor of a parent company (i.e., principal auditor) when other independent auditors that are not affiliated with the principal auditor (i.e., other auditors) are involved in the audit of the group financial statements. Using Korean data, we find that audit fees charged to the parent company by the principal auditor are negatively associated with the proportion of total assets or sales of subsidiaries audited by other auditors in the pre-IFRS period. This finding is consistent with the argument that the principal auditor views subsidiaries audited by other auditors as a business opportunity to attract new clients, and thus offers fee discounts to its client. However, in the post-IFRS period, this negative relation between audit fees and the involvement of other auditors becomes insignificant or positive, suggesting that IFRS adoption restricts auditors’ strategic behavior in audit pricing because IFRS adoption increases the audit complexity and risk associated with the involvement of other auditors.

Original languageEnglish
Pages (from-to)75-94
Number of pages20
JournalAuditing
Volume37
Issue number4
DOIs
StatePublished - Nov 2018

Bibliographical note

Publisher Copyright:
© 2018, American Accounting Association. All rights reserved.

Keywords

  • Audit complexity
  • Audit fees
  • Business opportunity
  • IFRS adoption
  • Other auditors

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