In this paper we examine whether there are perceived and observed benefits or burdens from using two audit firms instead of one. In 2005 the mandatory joint audit requirement was abolished in Denmark. This provides a unique setting for studying the consequences and implications of going from a joint audit regime to a single auditor/voluntary joint audit regime. The dataset used in this paper has been collected for the full population of non-financial Danish companies listed on the Copenhagen Stock Exchange (CSE) in the years 2004 and 2005. We find that a majority of firms perceive joint audits to be a net burden. Furthermore, based on DeAngelo's (1981) initial audit pricing model and legislators' claim that joint audits are an unnecessary economic burden to the companies we predict and find discounts (of around 25%) in audit fees in companies that change to single audits. The primary driving-force behind this seems to be initial price cuts due to competition. However, the results indicate that efficiency gains may also be part of the explanation. We do not find either a general or marginal Big Four effect in the Danish audit market.
joint audits; auditor change; audit fee cutting; audit efficiency; Big 4 - Non Big 4
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European Accounting Association 33rd Annual Congress EAA 2010