2021 Fiscal Year Research-status Report
The Effect of the Big 4 to Big 3 Audit Market Transition on Initial Year Audit Fee, Client Bargaining Power, Audit Quality and Client Following Audit Partners
| Project/Area Number |
20K13654
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| Research Institution | Nagoya University of Commerce & Business |
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Principal Investigator |
Frendy 名古屋商科大学, 商学部, 准教授 (00825218)
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| Project Period (FY) |
2020-04-01 – 2023-03-31
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| Keywords | Auditor Switch / Client Bargaining Power / Partner Similarity |
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| Outline of Annual Research Achievements |
The first study investigates whether the Japanese auditor switching behaviors affect the relationship between audit fee and client bargaining power. This study finds that clients’ buying power represents bargaining leverage for clients with continuing auditors. However, clients voluntarily switching to larger firms shows weaker bargaining leverage in negotiating lower audit fees.
The second study investigates audit partners' continuity and reveals that clients of smaller audit firms experience lower quality audits when consecutive audit engagements share a higher degree of similar partners. Clients of large auditors with a stable composition of partners pay lower audit fees and experience more efficient audits.
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| Current Status of Research Progress |
Current Status of Research Progress
3: Progress in research has been slightly delayed.
Reason
The COVID-19 pandemic prevented the lead investigator from physically accessing the Economic Research Center of Nagoya University. This restriction caused delays in literature and empirical data collection at the Economic Research Center of Nagoya University. The restriction contributed to the delayed submission of the first and second papers for publication in February 2022.
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| Strategy for Future Research Activity |
The first study is titled “Moderating Effects of Restructuring-Driven, Involuntary, and Voluntary Auditor Switching on Buying Power and Audit Fees” and it was submitted to the Asian Review of Accounting. The second study is titled “Employing String Similarity Metrics to Estimate Partners’ Continuity at the Audit Team Level: Determinant and Its Effects on Audit Outcomes” and it was submitted to the Journal of Accounting Literature. Both papers are currently in the first round of peer-review. The extension of the grant will be used to support revisions of both papers.
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| Causes of Carryover |
The remaining balance of the grant was due to the delays in the submission of the first and second papers for publication. The papers were submitted for publication in February 2022 and they are currently undergoing the first stage of peer-review. The remaining balance will be used to purchase additional reference materials and editing services during the the revision process of both papers.
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