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Article
Publication date: 26 July 2021

Bennet Schierstedt and Maarten Corten

This study aims to examine the relationship between family firm characteristics and audit fees. It also examines the extent to which the family name is considered a red…

Abstract

Purpose

This study aims to examine the relationship between family firm characteristics and audit fees. It also examines the extent to which the family name is considered a red flag during the risk assessment of these firm characteristics.

Design/methodology/approach

Using an external panel data set that includes 1,252 firm-year observations of 204 private German firms with a time series from 2010–2016, regression analyses were conducted to test the hypotheses.

Findings

This study’s results indicate that family involvement in management and the supervisory board are negatively related to audit fees, suggesting less demand and supply of audit effort due to lower Type I agency conflicts. Family ownership is found to be positively associated with audit fees due to higher Type II agency conflicts. Moreover, the negative effect of family involvement in management on audit fees becomes weaker if the firm name contains the family name, indicating that it is considered a red flag by auditors during their risk assessment.

Originality/value

Prior studies that examined audit fees in family firms mainly compared family firms to non-family firms. However, auditors are not likely to look at firms in a dichotomous way during their risk assessment, especially as there are numerous definitions of family firms. Instead, they will assess the underlying characteristics regarding management, ownership and governance, although a firm name containing the family name may influence this assessment. This study contributes to the literature by accounting for the heterogeneity of family firms and examining how auditors will assess this heterogeneity.

Details

Managerial Auditing Journal, vol. 36 no. 5
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 7 July 2021

Eugenia Yujin Lee and Wonsuk Ha

This study aims to examine how auditors respond to the revelation of clients’ corporate fraud.

Abstract

Purpose

This study aims to examine how auditors respond to the revelation of clients’ corporate fraud.

Design/methodology/approach

This study uses an ordinary least squares estimation to examine how audit fees and audit turnover change after the revelation of corporate fraud.

Findings

After a client discloses fraudulent activities, average audit fees significantly increase due to an increase in audit hours, rather than in audit premiums. Both new and continuing auditors increase audit hours for fraud firms, but only new auditors charge higher audit fees for the increased effort. In addition, when auditors are designated by regulators following the revelation of fraud, audit fees and premiums increase, but audit hours do not. Finally, auditor turnover becomes more frequent after the revelation of fraud. Overall, the findings suggest that auditors update their assessment of audit risks after fraud revelation and, thus, adjust their audit pricing and client acceptance decisions.

Practical implications

The study provides regulators and audit practitioners with insights into how to audit contract characteristics and regulatory intervention (auditor designations) affect auditors’ response to increased audit risks.

Originality/value

The study contributes to the auditing literature and practice by providing evidence on how auditors respond to the revelation of fraudulent activities and how their response depends on their ability to determine audit fees. Moreover, we provide novel evidence that audit contracting characteristics and regulatory requirements result in different responses of auditors toward changes in audit risks.

Details

Managerial Auditing Journal, vol. 36 no. 3
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 13 June 2008

Faten Sabry and Winai Wongsurawat

The purpose of this paper is to describe data assembled on all registered US investment companies on advisory fees using the NSAR filings and to analyze the impact of the…

Abstract

Purpose

The purpose of this paper is to describe data assembled on all registered US investment companies on advisory fees using the NSAR filings and to analyze the impact of the structure of the advisory contracts on the fees paid to mutual funds advisors. This analysis is particularly relevant now that mutual funds have to explain the rationale for the choice of the advisory fees in their public filings.

Design/methodology/approach

The paper summarizes data on advisory fees in the NSAR filings and uses regression analysis to examine the determinants of advisory fees.

Findings

The paper summarizes salient features of the mutual fund advisory fee contracts using the NSAR database. The analysis shows that breakpoint fee schedules designed to generate savings, do not automatically translate into lower expenses for the investors.

Practical implications

When determining the renewal of an advisory contract, the board of trustees of a mutual fund will then need to assess myriad factors related to the costs and profits of the fund, including the nature of the fee schedule. Regression models provide objective measures of assessing the reasonableness of advisory fees.

Originality/value

This paper contributes to the ongoing debate on the evaluation of mutual funds advisory fees and highlights the usefulness of the NSAR filings. The debate is especially relevant given the additional SEC disclosure requirements.

Details

Journal of Investment Compliance, vol. 9 no. 2
Type: Research Article
ISSN: 1528-5812

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Article
Publication date: 1 January 1990

Pete Giacoma

User fees are charges levied against individual consumers of publicly produced services and commodities and publicly granted privileges on a cost‐per‐unit basis. In the…

Abstract

User fees are charges levied against individual consumers of publicly produced services and commodities and publicly granted privileges on a cost‐per‐unit basis. In the broadest definition, user fees include charges for specialized database searches performed by public libraries, for electricity produced by a city‐owned utility, and for liquor licenses. In each of these cases, an individual can avoid the charge by consuming zero amount of the service, commodity, or privilege. By comparison, an individual cannot avoid the general taxes assessed for support of the library or other government services even if his or her direct consumption of a given service is zero.

Details

The Bottom Line, vol. 3 no. 1
Type: Research Article
ISSN: 0888-045X

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Article
Publication date: 1 February 2000

JOHN G. PERRY and MARTIN BARNES

Target cost contracts are growing in popularity but concerns remain about the interplay between fee, target, sharing ratios and the final price. This paper offers a…

Abstract

Target cost contracts are growing in popularity but concerns remain about the interplay between fee, target, sharing ratios and the final price. This paper offers a fundamental analysis of the principles under‐pinning target contracts. It shows that there is scope for manipulation of tenders and that suboptimal methods of tender evaluation are in use. The paper analyses both fixed fee and percentage fee contracts. Methods of tender evaluation are proposed that will both reduce the scope for manipulation by tenderers and increase the likelihood of the contract being awarded to the tenderer whose final price will be the lowest. The analysis reveals a strong case for setting the contractor's share of cost overrun or underrun at a value that is not less than 50%. Finally, the paper proposes two simplifications that would reduce the number of variables in target cost contracts of the future. One is for the employer to set the fee and the other requires only that a target be tendered but with the fee built into it.

Details

Engineering, Construction and Architectural Management, vol. 7 no. 2
Type: Research Article
ISSN: 0969-9988

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Article
Publication date: 1 February 1976

ROSS I. HARROLD

This article considers the use of charging differential fees for the same tuition services as a means to widen the financial accessibility of non‐government schools to…

Abstract

This article considers the use of charging differential fees for the same tuition services as a means to widen the financial accessibility of non‐government schools to children of less affluent parents in Australia. After discussing theoretical aspects, the author considers how the theoretical concepts could be operationalized, then how a sliding scale fee schedule could be implemented without, and with, external financial assistance.

Details

Journal of Educational Administration, vol. 14 no. 2
Type: Research Article
ISSN: 0957-8234

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Article
Publication date: 27 February 2014

Daniel A. Nathan and Lauren A. Navarro

– To explain the SEC's focus on the appropriate use of fee-based accounts and disciplinary efforts to identify and prevent “reverse churning.”

Abstract

Purpose

To explain the SEC's focus on the appropriate use of fee-based accounts and disciplinary efforts to identify and prevent “reverse churning.”

Design/methodology/approach

Describes the quantitative analytics used in the SEC's Risk Analysis Examinations (RAEs) to identify reverse churning and other problematic behaviors, explains why the inappropriate use of fee-based or “wrap fee” accounts and “double charging” can be unfair to investment clients, summarizes prior NASD and FINRA guidance and enforcement regarding fee-based account supervision, and recommends account monitoring actions that firms should take to ferret out reverse churning.

Findings

The SEC's continuing interest in reverse churning and double-charging, and its use of new examination and investigation tools, together suggest that the future will see more investigations and enforcement actions against firms who place clients in a fee-based or “wrap-fee” account without having adequate supervisory procedures to determine and monitor whether such accounts are appropriate for those clients.

Practical implications

Monitoring accounts to ferret out reverse churning has proven difficult for firms in the past, since spotting inactivity might be more challenging than detecting excessive trades (known as “churning”). However, it seems that the SEC and its staff are enhancing their ability to identify and address these violations.

Originality/value

Practical advice from experienced financial services lawyers.

Details

Journal of Investment Compliance, vol. 15 no. 1
Type: Research Article
ISSN: 1528-5812

Keywords

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Article
Publication date: 6 November 2018

Robert Van Grover

To summarize and interpret a Risk Alert issued on April 12, 2018 by the US SEC’s Office of Compliance Inspections and Examinations (OCIE) on the most frequent advisory fee

Abstract

Purpose

To summarize and interpret a Risk Alert issued on April 12, 2018 by the US SEC’s Office of Compliance Inspections and Examinations (OCIE) on the most frequent advisory fee and expense compliance issues identified in recent examinations of investment advisers.

Design/methodology/approach

Summarizes deficiencies identified by the OCIE staff pertaining to advisory fees and expenses in the following categories: fee billing based on incorrect account valuations, billing fees in advance or with improper frequency, applying incorrect fee rates, omitting rebates and applying discounts incorrectly, disclosure issues involving advisory fees, and adviser expense misallocations.

Findings

In the Risk Alert, OCIE staff emphasized the importance of disclosures regarding advisory fees and expenses to the ability of clients to make informed decisions, including whether or not to engage or retain an adviser.

Practical implications

In light of the issues identified in the Risk Alert, advisers should assess the accuracy of disclosures and adequacy of policies and procedures regarding advisory fee billing and expenses. As a matter of best practice, advisers should implement periodic forensic reviews of billing practices to identify and correct issues relating to fee billing and expenses.

Originality/value

Expert guidance from experienced investment management lawyer.

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Article
Publication date: 5 May 2021

Giacomo Morri, Ugo Perini and Rachele Anconetani

The paper aims to investigate the performance determinants of European non-listed private equity real estate funds between 2001 and 2014.

Abstract

Purpose

The paper aims to investigate the performance determinants of European non-listed private equity real estate funds between 2001 and 2014.

Design/methodology/approach

Using a sample of 363 funds collected from the Inrev database, the analysis evaluated the impact of fees and other intrinsic characteristics of these funds, such as leverage, size and duration, on the funds’ performance, intending to enhance the understanding underlying their relationship.

Findings

The findings show a negative relationship between the return of the funds and redemption fee, performance fee and management fee. Conversely, marketing fees have a positive effect on performance. When analyzing the investment style, the results reveal inhomogeneous behaviors of leverage on funds’ performance. This variable has a positive impact on the return in core funds, while there is a negative relationship in value-added investments. Finally, the emphasis on the global financial crisis shows that the effects of the independent variables on the performance do not significantly change in different economic cycles.

Practical implications

The practical implication of the research is to understand whether an investor can direct its resources in a fund, leveraging on certain intrinsic characteristics that can be observed a priori.

Originality/value

Even if there is a considerable body of literature on determinants of performance in European non-listed real estate funds, little research has analyzed the role of fees in driving their results. Besides, this paper takes advantage of observations from different investment styles to emphasize the impact of higher or lower risk profiles and from the full economic cycle to understand the effects of the crisis period.

Details

Journal of European Real Estate Research , vol. 14 no. 2
Type: Research Article
ISSN: 1753-9269

Keywords

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Article
Publication date: 16 June 2021

Ammar Ali Gull, Muhammad Atif, Ayman Issa, Muhammad Usman and Muhammad Abubakkar Siddique

This paper aims to examine whether CEO succession with gender change (male to female) affects audit fees in the Chinese setting. In addition, this study examines whether…

Abstract

Purpose

This paper aims to examine whether CEO succession with gender change (male to female) affects audit fees in the Chinese setting. In addition, this study examines whether the relationship exists in both types of ownership, i.e. non-state-owned enterprises (SOEs) and SOEs.

Design/methodology/approach

This study uses data from all A-share non-financial firms listed on both the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) for the period 2009 to 2015. To draw inferences, this study uses pooled ordinary least squares regression as a baseline technique. This study performs sub-sample analyzes for robustness. To account for endogeneity, this study uses three techniques including firm fixed-effects regression, the two-step Heckman model and the system generalized method of moments (GMM).

Findings

This study documents a significantly negative relationship between CEO succession with gender change and audit fees. However, the negative effect of CEO succession on audit fees is more pronounced in non-SOEs than SOEs. This study also finds, in additional analyzes, a strong negative effect of female CEO succession on audit fees in sub-sample of large, high-risk, high-performance and firms audited by non-big auditors. The main finding is robust across three endogeneity techniques.

Practical implications

The findings add to the ongoing debate about the underrepresentation of women in key executive positions such as CEO. The results suggest that CEO succession from male to female has a favorable effect on the quality of internal monitoring mechanisms (due to the superior monitoring skills of women) and enhances the quality of financial reporting. The study has practical implications for regulatory bodies and corporate decision-makers; this study encourages them to look into considering women in the executive succession framework.

Originality/value

This study contributes to the literature by exploring the effect of CEO succession with gender change (male to female) on audit fees in the context of China and the existence of this relationship in non-SOEs and SOEs.

Details

Managerial Auditing Journal, vol. 36 no. 3
Type: Research Article
ISSN: 0268-6902

Keywords

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