Nicole V.S. Ratzinger-Sakel

Audit and Non-Audit Fees in Germany – The Impact of Audit Market Characteristics

We investigate the impact of three German audit market characteristics on audit and non-audit fees for the years 2005–2007. We find no relation between audit and non-audit fees, which suggests that audit and non-audit fee determination in Germany does not indicate any particular impairment of auditor independence. Further, we find that fee-cutting for initial audit engagements depends significantly on client size. We find no evidence of network-related fee reporting bias due to the ambiguous phrasing of German fee disclosure requirements, which implies that German fee data are internationally comparable.

Restricting Non-Audit Services in Europe - The Potential (Lack of) Impact of a Blacklist and a Fee Cap on Auditor Independence and Audit Quality

Abstractn The European audit reform aims to stabilize financial markets by enhancing trust in the statutory audit. To strengthen auditor independence and to increase audit quality, the provision of non-audit services to audit clients is further restricted. The supranational introduction of a blacklist, including prohibited non-audit services, and of a cap on the volume of non-audit fees is a novelty on the European level. The purpose of this paper is threefold. First, we analyze these measures in light of both current national restrictions of non-audit services and auditor fee disclosure requirements in France, Germany and the UK. Second, we assess the potential impact of the cap on the volume of non-audit services by providing descriptive evidence on current fee levels in these three countries. Third, we critically assess the impact of the audit reform regarding non-audit services in light of audit research by analyzing the state of the art. On this basis, we doubt whether the European reform of auditor-provided non-audit services is effective and efficient. The main goal of enhancing perceived auditor independence and, thus, public trust in audited financial statements of public-interest entities may be hardly achieved and the blacklist might present a tradeoff between auditor independence and audit quality.

Consequences of the Abandonment of Mandatory Joint Audit: An Empirical Study of Audit Costs and Audit Quality Effects

Abstract This paper focuses on the unique Danish setting in examining the consequences of abandoning a mandatory joint audit regime. We study the effects on audit costs (measured by audit fees) and audit quality (measured by abnormal accruals) of the abandonment of the mandatory joint audit in Denmark in 2005. We perform our analysis on non-financial listed Danish companies for the 2002–2010 period. Our results show that a joint audit is associated with higher fees, but that the association between joint audit and abnormal accruals is insignificant. This suggests that the higher audit fees cannot be explained by higher audit quality. Our results are robust to alternative measurements of fees and audit quality. Additional analyses show that the fee premium related to a joint audit decreases over time and that the Big 4 concentration in our sample has increased since the switch from mandatory to voluntary joint audit. Our results are consistent with the motivations driving the regulatory change in Denmark and are of interest to regulators and actors in the audit market.

The Effects of Cultural Dimension on the Internal Audit Function - A Worldwide Comparison of Internal Audit Characteristics

Using a multinational sample of companies from different industries together with the five cultural dimensions of Hofstede (2001) as proxies for national culture, we analyze how cultural differences across countries affect the organization and work of internal audit functions (IAF). We use a unique research focus and a multinational dataset that examine the influence of national culture on IAFs in multiple dimensions. We cover all five Hofstede’s cultural dimensions to obtain a holistic view on the effects of national culture and directly link them, to relevant proxies, which describe the structure and work of the IAF. Our dataset is based on the so-called Common body of knowledge - study from the IIA, representing 166 different countries and 3,323 Chief Audit Executives (CAE) responses from a broad industry and size range. Our results indicate a positive association between the cultural dimensions, long-term orientation and uncertainty avoidance, and an objective and independent IAF. In contrast, individualisms does not seem to be supportive for an objective and independent IAF. We contribute to the existing literature with our exploratory study in several ways. First of all, we use a completely new research approach and dimension of IAF research. Second, our study shows that different cultural dimensions have significant effects on specific IAF characteristics. With the operationalization of IIA’s ten Core Principles, we try to find a comprehensible way to measure typical factors of an effective work and structure of the IAF. Our results should open new research streams on the internationalization and effects of culture on the IAF.

Does considering key audit matters affect auditor judgment performance

The new IAASB International Standard on Auditing ISA 701 requires the disclosure of key audit matters (KAM), i.e., “matters that, in the auditor’s professional judgment, were of most significance in the audit...” (IAASB, 2015a, paragraph 8), which can be seen as one of the most prominent changes of the auditor’s report for decades. There is some evidence regarding the effect of a KAM section within the three following domains relevant for the present study: auditor liability (Backof, Bowlin, & Goodson, 2014; Kachelmeier, Schmidt, & Valentine, 2015; Brown, Majors, & Peecher, 2015; Gimbar, Hansen, & Ozlanski, 2016a; Brasel, Doxey, Grenier, & Reffett, 2016; Vinson, Robertson, & Cockrell, 2018); aggregated capital market reactions (Lennox, Schmidt, & Thompson, 2016; Gutierrez, MinuttiAbstract