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AUDITOR CHOICE AND AUDIT FEE DETERMINANTS
Author(s) -
Thornton Daniel B.,
Moore Giora
Publication year - 1993
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1993.tb00259.x
Subject(s) - audit , business , quality audit , audit risk , control (management) , quality (philosophy) , indeterminate , accounting , inherent risk (accounting) , actuarial science , external auditor , economics , internal audit , philosophy , management , epistemology , mathematics , pure mathematics
An analytical model predicts that cross‐sectionally (1) the marginal cost of auditor quality is inversely related to the strength of client companies' internal control. (2) In the short run, clients with stronger control, lower business risk, or less complex audits choose higher quality auditors; but whether they pay higher audit fees is indeterminate. (3) In the long run, client companies have both lower quality auditors and weaker controls as risk or complexity increase, so less precise financial reporting is expected from them. (4) The effects of risk and complexity on fees are indeterminate, because the price and quantity components of fees tend to vary inversely as risk or complexity change. The predictions are consistent with findings that have been viewed as empirical anomalies.