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RESEARCH PRODUCT

Audit Regulation, Auditor Industry Expertise and Effects on Audit Pricing

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description

The diversity of regulations that govern statutory audit in European countries provides the opportunity to analyse how audit regulation affects audit fees. This study is the first to analyse empirically the joint effect of audit regulation and auditor expertise on audit fees for the institutional setting of 14 European countries by using a sample of 4,293 European firms for the period from 2003 to 2011. I analyse four attributes of audit regulation, namely terms for annual renewal of the mandate, nature of the auditors’ liability, whether the state requires joint audits and whether it imposes restrictions on the provision of non-audit services. The main results show that using an industry specialist auditor results in higher audit fees. Moreover, three regulatory attributes—auditor liability, annual renewal of the mandate and joint audit—play a significant role in determining audit fees. Fees are higher when the auditor’s mandate may be renewed or terminated each year, and when the auditor’s liability is tort. Mandatory joint audit has also a positive impact on audit fees.