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Auditor's Engagement Risk and Audit Fees: The Role of Audit Firm Alumni

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  • Ilias G. Basioudis

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.

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  • Ilias G. Basioudis, 2007. "Auditor's Engagement Risk and Audit Fees: The Role of Audit Firm Alumni," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(9‐10), pages 1393-1422, November.
    • Handle: RePEc:bla:jbfnac:v:34:y:2007:i:9-10:p:1393-1422
    DOI: 10.1111/j.1468-5957.2007.02052.x
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    Cited by:

    1. Wenxia Ge & Jeong‐Bon Kim, 2020. "How does the executive pay gap influence audit fees? The roles of R&D investment and institutional ownership," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(5-6), pages 677-707, May.
    2. Ishaq Ahmed Mohammed & Ayoib Che-Ahmad & Mazrah Malek, 2018. "Shareholder’s involvement in the audit committee, audit quality and financial reporting lag in Nigeria," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(2), pages 355-374, April.
    3. Markus Widmann & Florian Follert & Matthias Wolz, 2021. "What is it going to cost? Empirical evidence from a systematic literature review of audit fee determinants," Management Review Quarterly, Springer, vol. 71(2), pages 455-489, April.

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