Large Audit Firm Premium and Audit Specialization in the Public Sector

Download or read book Large Audit Firm Premium and Audit Specialization in the Public Sector written by Michael E. Bradbury and published by . This book was released on 2014 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: The outsourcing of public sector audits to private sector auditors is an important public sector issue. This paper addresses the existence of an audit brand name premium in the public sector by comparing audit fees between the government auditor and Big 5 auditors. I also examine whether audit premiums exist for Big 5 industry, national and city specialists. The study contributes to prior research by (1) statistically adjusting for self-selection bias, and (2) allowing slope coefficients in the audit fee model to vary between the Big 5 and the government audit sector and estimating the counterfactual fee (i.e., the expected fee using the alternative auditor fee model). The Big 5 premium is around 23 percent. However, this depends on whether the Big 5 auditor is an industry specialist. An industry specialist passes on a discount of 17.4 percent to the client. There is no premium related to being a national leader. The evidence is mixed as to whether city specialists command an audit fee premium.