Audit pricing, start-up cost and opinion shopping
Loading...
Date
2014
Journal Title
Journal ISSN
Volume Title
Publisher
Journal of Accounting and Management Information Systems
Abstract
The purpose of this paper is to predict the association between the
effect of start-up cost and audit opinion shopping on the pricing strategies of
medium-sized audit firms. Using a sample of 753 local –office-year observations
between 2006 and 2011, we find evidence of a positive association between higher
audit pricing of new private client and audit opinion shopping. We also find that
start-up cost is a good predictor of higher initial fees charged by auditors for
private clients. While earnings risk management (ERM) and financial performance
risk (FPR) are significant factors in audit pricing, litigation risk (LR) however
failed to evolve as a direct significant predictor. Although this study focused on the
effects of start-up costs and opinion reporting, it fails to differentiate between firm
cost allocation and apportionment. The model can be used to assist audit firms not
only to develop pricing strategies that fully reflect the effective cost allocation, but
also to be receptive to the implications of opinion reporting on service pricing.