Auditor's engagement risk and audit fees: the role of the audit firm alumni

Ilias G. Basioudis*

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

This study explores the effect of the association of audit firm alumni with their alma mater on audit prices. The tests indicate that there is a moderate reduction of up to 21% in the level of audit fee when alumni (i.e., former employees) of the incumbent audit firm sit on the client board of directors which is consistent with the engagement risk theory. This suggests that there is an 'alumni effect' in the market for audit services. The findings hold only in the large company segment of the market. The results are robust to different model specifications and alternative samples. The sample comprises all executive and non-executive directors who run the UK quoted companies and are simultaneously ICAEW qualified chartered accountants. The study's implications for the accounting profession and the regulators are also discussed. © 2007 The Author Journal compilation © 2007 Blackwell Publishing Ltd.

Original languageEnglish
Pages (from-to)1393-1422
Number of pages30
JournalJournal of Business Fnance and Accounting
Volume34
Issue number9-10
DOIs
Publication statusPublished - Nov 2007

Bibliographical note

The definitive version is available at www.blackwell-synergy.com

Keywords

  • audit fees
  • audit firm alumni
  • auditor's engagement risk
  • executive and non-executive directors

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