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Non-Linearity Of Audit Prices And Reputation In Developing Countries: Shift To Or From?

Author

Listed:
  • Svitlana Shulha

    (Department of Audit, National Academy of Statistics, Accounting and Auditing, Ukraine)

  • Iaroslav Petrakov

    (Department of Accounting, Taxation and Auditing, Chernihiv National University of Technology, Ukraine)

Abstract

The purpose of the paper is to analyse the origins of audit prices non-linearity in developing countries. We assume risk- and industry-sensitiveness of audit firms there due to the low institutional capacity, weak market forces development and questionable both auditors and clients ethical behaviour affecting market sustainability and implying additional challenges on stakeholder confidence. Methodology. We combine economic geography approach and reputation-averse phenomenon to explain endogenous volatility of average audit prices in Ukraine for the period of 2008-2015. Analysis of recent publications partially explains audit pricing non-linearity determinants that have both qualitative (brand and specialization) and quantitative (risks, manipulations, bribery) nature in developing countries. First, we qualify determinants of audit fees by inherent origin (endogenous, exogenous), stakeholder side (demand, supply), and market structure (concentrated, fragmented). Second, we summarize reputation challenges of audit business in developing countries. Third, we run empirical analysis of average prices in Ukraine for the period of 2008-2015 based on annual Chamber of Auditors of Ukraine reports data. Practical implications. Audit pricing models in developed countries are mainly exogenous and based on the auditor's risk assessment. Vulnerability of markets and clients' unethical behaviour makes audit pricing models more endogenous in developing countries. Value/originality. This is the first paper providing a better understanding of audit prices declination in Ukraine as a consequence of dysfunctional audit firms' behaviour, institutional and market fragility, inherent to developing countries.

Suggested Citation

  • Svitlana Shulha & Iaroslav Petrakov, 2016. "Non-Linearity Of Audit Prices And Reputation In Developing Countries: Shift To Or From?," Baltic Journal of Economic Studies, Publishing house "Baltija Publishing", vol. 2(5).
    • Handle: RePEc:bal:journl:2256-0742:2016:2:5:14
    DOI: 10.30525/2256-0742/2016-2-5-93-97
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    References listed on IDEAS

    as
    1. Elizabeth Carson & Neil Fargher, 2007. "Note on audit fee premiums to client size and industry specialization," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 47(3), pages 423-446, September.
    2. Apostolos Ballas & Irene Fafaliou, 2008. "Market Shares and Concentration in the EU Auditing Industry: the Effects of Andersen’s Demise," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 14(4), pages 485-497, November.
    3. repec:kap:iaecre:v:14:y:2008:i:4:p:485-497 is not listed on IDEAS
    4. Salau ABDULMALIK O. & Ayoib CHE AHMAD, 2016. "Boardroom diversity and audit fees: director ethnicity, independence and nationality," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 14(136), pages 413-413, Aprilie.
    5. Timothy B. Bell & Rajib Doogar & Ira Solomon, 2008. "Audit Labor Usage and Fees under Business Risk Auditing," Journal of Accounting Research, Wiley Blackwell, vol. 46(4), pages 729-760, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    audit pricing; risks; developing countries; reputation; fee premium;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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