To read this content please select one of the options below:

IFRS adoption/reporting and auditor fees: the conditional effect of audit firm size and tenure

Medhat N. El Guindy (Department of Accounting and Finance, American University in Dubai, Dubai, United Arab Emirates, and Department of Accounting, Tanta University, Tanta, Egypt)
Nadia Sbei Trabelsi (Department of Accounting and Finance, American University in Dubai, Dubai, United Arab Emirates)

International Journal of Accounting & Information Management

ISSN: 1834-7649

Article publication date: 28 April 2020

Issue publication date: 16 October 2020

934

Abstract

Purpose

This paper aims to investigate the impact of International Financial Reporting Standards (IFRS) adoption on audit and non-audit fees in the UK setting. The study investigates whether UK firms adopting IFRS for the first time or reporting under IFRS, in general, are being charged higher audit and non-audit fees and whether this impact is conditional on audit firm size and tenure.

Design/methodology/approach

Using empirical data for UK listed firms from 2003-2007, the paper uses a regression model that explains audit and non-audit fees by independent variables measuring auditors’ and auditees’ characteristics including IFRS adoption and reporting. Additional regressions with interaction terms were performed to test the hypothetical conditional impact of auditor size and audit firm tenure on the above-mentioned association.

Findings

Audit and non-audit fees increase significantly for companies adopting IFRS for the first time and this increase is persistent during later years. In addition, results suggest that both Big four and non-Big four auditors charge higher audit and non-audit fees to their clients adopting or reporting under IFRS in a similar manner. Furthermore, findings indicate that audit firms increase audit and non-audit fees for old and new clients using IFRS which suggests no low-balling effect is detected.

Research limitations/implications

Results reported in this study provide insights to regulators in jurisdictions similar to the UK regarding the cost of IFRS adoption which includes higher audit and non-audit fees imposed by both Big four and non-Big four audit firms. In addition, this study argues, to some extent, against the notion that auditors may charge lower fees in the early years of the audit engagement to win new audit clients.

Originality/value

To the best of the knowledge, the findings are unique at two levels. First, the paper provides evidence on the cost of using IFRS in the UK jurisdiction which was not explored by previous research. Second, the paper investigates the potential conditional effect of auditor size and audit tenure on the association between IFRS adoption and auditors’ fees.

Keywords

Citation

El Guindy, M.N. and Trabelsi, N.S. (2020), "IFRS adoption/reporting and auditor fees: the conditional effect of audit firm size and tenure", International Journal of Accounting & Information Management, Vol. 28 No. 4, pp. 639-666. https://doi.org/10.1108/IJAIM-09-2019-0107

Publisher

:

Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

Related articles