Hironori Fukukawa

Audit Pricing and Cost Strategies of Japanese Big 3 Firms

This study aims to investigate whether and how audit fee determinants examined in prior studies influence audit fees and costs in the Japanese audit market, and to examine whether audit pricing and cost strategies differ among Japanese Big 3 firms. Prior studies have not fully examined audit costs and differences in audit pricing and cost strategies among large audit firms. Based on data pertaining to the 2006 audits of publicly listed companies conducted by Japanese Big 3 firms, the present study reveals that many audit fee determinants, such as client size, complexity, risk, whether the client is an SEC registrant, the audit firms market share in the industry, and client bargaining power, influence audit costs. Other variables, such as the clients location, fiscal year end, and the audit firms differentiation, influence only either audit fees or costs, or affect both audit fees and costs in opposite directions. Furthermore, the relationships between audit fees/costs and the determinants vary among Big 3 firms.

Client Risk Factors and Audit Resource Allocation Decisions

While contemporary auditing standards such as ISA 315 provide broad categories of client risks, prior research regarding audit resource allocation decisions has been based on individual client risks. This study contributes to the literature by using factor analysis to examine how individual client risks are categorized into broad risk factors and by examining the extent to which such broad risk factors are associated with audit engagement planning decisions. These issues are important because auditing standards direct auditors to consider risk patterns and interrelationships in addition to individual risks. Finally, we consider additional individual client risks that reflect those relevant to contemporaneous audit approaches and have not been examined in prior studies. Based on archival data extracted from the working papers of 228 clients of a Japanese audit firm, we find that individual client risks empirically group together in a way that is similar to categories discussed in recent auditing standards. We also find significant relationships between audit resource allocation decisions and broad risk factors that have not been found in prior studies which use individual risk assessments in their models. Finally, we find that client risks that are emphasized in holistic audit approaches such as aggressiveness of forecasts and industry decline also have a significant impact on audit resource allocations.

Exploring the Role of Country and Client Type on the Auditor’s Client Risk Assessments and Audit Planning Decisions

Purpose - The purpose of this paper is to examine whether country (Australia or Japan) and client type (public sector or private sector) impact the auditors client risk assessments, subsequent audit planning decisions (planned audit hours) and audit planning responsiveness to client risk assessments. Design/methodology/approach - The study is based on previously developed audit planning models and uses working paper-sourced data of planned auditor effort and nine client risk assessments. The study samples are taken from public and private sector audit engagements of two major audit firms in Australia and Japan, respectively. Findings - Evidence is found that country and client type do have an impact on the auditors client risk assessments and planned total audit hours, but they do not moderate audit planning responsiveness to client risk assessments. Research limitations/implications - The test variable is confounded by the country and client type characteristics inherent in the studys samples. If the differences are caused by country, this suggests that audit planning decisions vary across countries, even when the same auditing standards are adopted. However, if they are caused by client type, this suggests that the same audit approach (i.e. the audit risk model) is applied differently depending on client characteristics. Practical implications - These findings are useful to international standard setters, audit practice quality control and training, and audit research. Originality/value - No prior study has examined the role of country and client type on the auditors client risk assessments and audit planning decisions. Further, no prior study has examined whether the relationship between the auditors client risk assessments and audit planning decisions is moderated by country and client type.

Effects of audit partners on clients’ business risk disclosure

We empirically investigate audit engagement partners’ involvement in business risk disclosure. Specifically, we examine whether the quality of business risk disclosure is influenced by engagement partner tenure and knowledge. We also examine whether the effects of partner tenure and knowledge are similar for Big 4 audit firms and non-Big 4 firms. Since fiscal year 2003, listed companies in Japan have been required to disclose business risk information. Although the business risk information is not audited, auditors concerned about their audit quality may seek to influence clients’ business risk disclosure practices. Giving advice to management on the narrative business risk disclosure can contribute to improving the perceived value of the auditor’s services which can be a competitive advantage. Using a sample of Japanese listed companies from 2003 to 2010, we find that if the engagement partners’ tenure is shorter, a company discloses more business risk information and the disclosure is more detailed. Fur...