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Audit pricing, lowballing and auditor turnover a dynamic analysis
Regulatory bodies that oversee the provision of audit services have recently expressed concern about the common practice of pricing initial audits significantly below cost (lowballing). Specifically, it is feared that lowballing could weaken auditor independence and reduce audit quality, since lowballing could provide clients with a credible threat of terminating incumbent auditors should they refuse accounting concessions. However, Magee and Tseng (1990) have shown that when auditors possess all bargaining power and there is no disagreement among auditors on the proper interpretation of GAAP, clients have nothing to gain by threatening termination of incumbent auditors and there is no weakening of auditor independence. Therefore, the concern expressed by regulators must presuppose that clients (i) possess bargaining power superior to that of auditors, and (ii) are free to change auditors at any time. But, if these features are true, it is puzzling why lowballing would occur in the first place. Lowballing can only occur if there are rents to be earned by auditors (DeAngelo 1981a), but such rents seem to be inconsistent with clients possessing most of the bargaining power (Dye 1991; Magee and Tseng 1990). We construct and analyze an economic model of audit pricing which shows how equilibrium audit prices would sustain rents and lowballing even when clients have most or all of the bargaining power and are free to change auditors every period. Our analysis also throws light on the related phenomenon of auditor turnover, and shows that the efficient pricing of audit services by itself precipitates some turnover apart from any turnover due to other forces such as client-auditor disagreements (Dye 1991) and client-auditor matching (Gigler and Penno 1993). Given auditor turnover, we analyze how audit prices, lowballing, and turnover rates evolve over time.
Ketersediaan
| Call Number | Location | Available |
|---|---|---|
| AR6904 | PSB lt.dasar - Pascasarjana | 1 |
| Penerbit | USA: American Accounting Association 1994 |
|---|---|
| Edisi | Vol. 69, No. 4, Oct., 1994 |
| Subjek | Bargaining power Dynamic analysis lowballing auditor turnover audit pricing revelation principle |
| ISBN/ISSN | 00014826 |
| Klasifikasi | NONE |
| Deskripsi Fisik | 23 p. |
| Info Detail Spesifik | The Accounting Review |
| Other Version/Related | Tidak tersedia versi lain |
| Lampiran Berkas |