IDEAS home Printed from https://ideas.repec.org/a/bla/acctfi/v49y2009i4p675-695.html
   My bibliography  Save this article

Effect of outsourcing public sector audits on cost‐efficiency

Author

Listed:
  • Kar‐Ming Chong
  • Colin Dolley
  • Keith Houghton
  • Gary S. Monroe

Abstract

This study compares the cost‐efficiency of ‘in‐house’ and outsourced to private sector audit supplier arrangements to deliver financial audits in the public sector by examining audit cost‐efficiency within the context of the public sector arrangement at one state in Australia (Western Australia). The results for 178 public agencies show that outsourced audits are, in general, more costly than in‐house audits, but this result is conditional on the type and size of public agency. Specifically, outsourced audits are more costly than in‐house audits for small statutory authority audits, whereas for specialist audits (i.e. hospitals) and large and complex statutory authority audits, the in‐house supply is equally efficient as the outsourced service.

Suggested Citation

  • Kar‐Ming Chong & Colin Dolley & Keith Houghton & Gary S. Monroe, 2009. "Effect of outsourcing public sector audits on cost‐efficiency," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(4), pages 675-695, December.
    • Handle: RePEc:bla:acctfi:v:49:y:2009:i:4:p:675-695
    DOI: 10.1111/j.1467-629X.2009.00302.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-629X.2009.00302.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-629X.2009.00302.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Thorne, Jerry & Holmes, Sarah A. & McGowan, Annie S. & Strand, Carolyn A. & Strawser, Robert H., 2001. "The relation between audit pricing and audit contract type: a public sector analysis," Journal of Accounting and Public Policy, Elsevier, vol. 20(3), pages 189-215.
    2. Palmrose, Zv, 1986. "Audit Fees And Auditor Size - Further Evidence," Journal of Accounting Research, Wiley Blackwell, vol. 24(1), pages 97-110.
    3. Deis, Donald Jr. & Giroux, Gary, 1996. "The effect of auditor changes on audit fees, audit hours, and audit quality," Journal of Accounting and Public Policy, Elsevier, vol. 15(1), pages 55-76.
    4. Nicholas Dopuch & Mahendra Gupta & Dan A. Simunic & Michael T. Stein, 2003. "Production Efficiency and the Pricing of Audit Services," Contemporary Accounting Research, John Wiley & Sons, vol. 20(1), pages 47-77, March.
    5. Allen Craswell, 1997. "Competition in Public-Sector Auditing," Australian Accounting Review, CPA Australia, vol. 7(13), pages 16-21, May.
    6. Keith A. Houghton & Christine A. Jubb, 1998. "The Function of the Auditor-General: Independence, Competence and Outsourcing – the Policy Implications," Australian Accounting Review, CPA Australia, vol. 8(15), pages 30-35, May.
    7. Hood, Christopher, 1995. "The "new public management" in the 1980s: Variations on a theme," Accounting, Organizations and Society, Elsevier, vol. 20(2-3), pages 93-109.
    8. Sati P. Bandyopadhyay & Jennifer L. Kao, 2001. "Competition and Big 6 Brand Name Reputation: Evidence from the Ontario Municipal Audit Market," Contemporary Accounting Research, John Wiley & Sons, vol. 18(1), pages 27-64, March.
    9. Lowensohn, Suzanne & Johnson, Laurence E. & Elder, Randal J. & Davies, Stephen P., 2007. "Auditor specialization, perceived audit quality, and audit fees in the local government audit market," Journal of Accounting and Public Policy, Elsevier, vol. 26(6), pages 705-732.
    10. Roger Simnett & Peter Luckett & Arnold M. Wright, 2000. "The Development of Specialist Industry Knowledge in Government Auditing," Australian Accounting Review, CPA Australia, vol. 10(20), pages 35-45, March.
    11. Karl Hackenbrack & W. Robert Knechel, 1997. "Resource Allocation Decisions in Audit Engagements," Contemporary Accounting Research, John Wiley & Sons, vol. 14(3), pages 481-499, September.
    12. Cavalluzzo, Ken S., 2002. "Competition, fee-for-service requirements, and government performance: evidence on the Federal Reserve," Journal of Accounting and Public Policy, Elsevier, vol. 21(4-5), pages 315-356.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carrera, Nieves & Mareque, Mercedes, 2023. "Does gender affect qualifying decisions? Evidence from public sector audits," Journal of Business Research, Elsevier, vol. 154(C).
    2. Michael E. Bradbury & Gary Monroe, 2017. "Large audit firm premium and audit specialisation in the public sector," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(3), pages 657-679, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David C. Hay & W. Robert Knechel & Norman Wong, 2006. "Audit Fees: A Meta†analysis of the Effect of Supply and Demand Attributes," Contemporary Accounting Research, John Wiley & Sons, vol. 23(1), pages 141-191, March.
    2. 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.
    3. Reheul, Anne-Mie & Van Caneghem, Tom & Verbruggen, Sandra, 2011. "Auditor choice in the Belgian nonprofit sector: a behavioral perspective," Working Papers 2011/36, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    4. Nurul Nazlia Jamil, 2020. "The Power of Political Connections: Review on the Impacts of Audit Committee and Corporate Governance," Journal of Public Administration and Governance, Macrothink Institute, vol. 10(1), pages 333347-3333, December.
    5. Habib, Ahsan, 2011. "Audit firm industry specialization and audit outcomes: Insights from academic literature," Research in Accounting Regulation, Elsevier, vol. 23(2), pages 114-129.
    6. Gu, Junjian, 2021. "FDI characteristics, industry homogeneity, and audit fees in Japanese multinationals," Journal of Multinational Financial Management, Elsevier, vol. 61(C).
    7. Duellman, Scott & Hurwitz, Helen & Sun, Yan, 2015. "Managerial overconfidence and audit fees," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(2), pages 148-165.
    8. Christensen, Brant E. & Newton, Nathan J. & Wilkins, Michael S., 2021. "How do team workloads and team staffing affect the audit? Archival evidence from U.S. audits," Accounting, Organizations and Society, Elsevier, vol. 92(C).
    9. Alan Kilgore & Renee Radich & Graeme Harrison, 2011. "The Relative Importance of Audit Quality Attributes," Australian Accounting Review, CPA Australia, vol. 21(3), pages 253-265, September.
    10. Vivien Beattie & Alan Goodacre & Ken Pratt & Joanna Stevenson, 2001. "The determinants of audit fees—evidence from the voluntary sector," Accounting and Business Research, Taylor & Francis Journals, vol. 31(4), pages 243-274.
    11. John Ziyang Zhang & Yangxin Yu, 2016. "Does Board Independence Affect Audit Fees? Evidence from Recent Regulatory Reforms," European Accounting Review, Taylor & Francis Journals, vol. 25(4), pages 793-814, October.
    12. Yao, Dai Fei (Troy) & Percy, Majella & Hu, Fang, 2015. "Fair value accounting for non-current assets and audit fees: Evidence from Australian companies," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(1), pages 31-45.
    13. Yuan, Rongli & Cheng, Yingli & Ye, Kangtao, 2016. "Auditor Industry Specialization and Discretionary Accruals: The Role of Client Strategy," The International Journal of Accounting, Elsevier, vol. 51(2), pages 217-239.
    14. Karla M. Johnstone & Jean C. Bedard & Michael L. Ettredge, 2004. "The Effect of Competitive Bidding on Engagement Planning and Pricing," Contemporary Accounting Research, John Wiley & Sons, vol. 21(1), pages 25-53, March.
    15. Cahan, Steven & Hay, David & Li, Lina Z., 2021. "Audit firm merger and the strategic response by large audit firms," The British Accounting Review, Elsevier, vol. 53(3).
    16. Schelleman, C.C.M., 2001. "Determinants of the profitability of audit engagements : an empirical study," Research Memorandum 037, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    17. Willekens, Marleen & Achmadi, Christina, 2003. "Pricing and supplier concentration in the private client segment of the audit market: Market power or competition?," The International Journal of Accounting, Elsevier, vol. 38(4), pages 431-455.
    18. Owusu-Ansah, Stephen & Leventis, Stergios & Caramanis, Constantinos, 2010. "The pricing of statutory audit services in Greece," Accounting forum, Elsevier, vol. 34(2), pages 139-152.
    19. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    20. Chen, Vincent Y.S. & Keung, Edmund C. & Lin, I-Min, 2019. "Disclosure of fair value measurement in goodwill impairment test and audit fees," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(3).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:acctfi:v:49:y:2009:i:4:p:675-695. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/aaanzea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.