2022 Fiscal Year Final Research 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 Category |
Grant-in-Aid for Early-Career Scientists
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| Allocation Type | Multi-year Fund |
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| Review Section |
Basic Section 07100:Accounting-related
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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 | Audit team continuity / String similarity / Audit partners |
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| Outline of Final Research Achievements |
The research contributes to the existing empirical accounting literature by proposing a novel approach to measure audit team continuity that quantitatively proxy for changes in the composition of partners over consecutive audit engagements. The findings of our study contribute to the debate of partner rotations and audit retendering.
This study finds that clients of large audit firms are incentivized to maintain a more stable composition of audit teams because higher audit team continuity could contribute to a faster turnaround of audit reports while not compromising audit quality or increasing the audit fee. In light of this finding, regulators should consider the marginal effects of retendering regulations on large and small auditors to create a competitive audit market.
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| Free Research Field |
Accounting
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| Academic Significance and Societal Importance of the Research Achievements |
Regulators interested to pursue policies on audit retendering should consider the findings of this study since retendering directly affects the audit team continuity of existing clients because audit team continuity affects large and small auditors differently on audit outcomes and audit fee.
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