Audit market competition: auditor changes and the impact of tendering

Beattie, V. and Fearnley, S. (1998) Audit market competition: auditor changes and the impact of tendering. British Accounting Review, 30(3), pp. 261-289. (doi:10.1006/bare.1997.0070)



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Increased competition within the external audit market and the recent phenomenon of audit tendering has renewed interest in the factors influencing auditor changes. In this paper, a questionnaire instrument is used to elicit perceptions of the factors which influence auditor-client realignments in this new environment and to indicate the relative influence of economic and behavioural factors. Positive, statistically significant associations were found between unsolicited approaches and the consideration of either a change in auditor or the conduct of a competitive tender. Fees are both the most frequently cited reason for considering auditor change and the most frequently cited factor influencing the selection of a new auditor. The chemistry of the relationship with senior audit firm personnel was ranked as more important than service issues in new auditor selection. Several significant associations between the reasons for change and both company size and type of change are identified. In particular, smaller companies, and companies changing from a non-Big Six firm, were more likely to change due to the need for a wider range of services and the influence of third parties. Findings indicated that 55% of auditor changes were effected by means of a tender, with the incumbent auditor having only an 18% chance of retaining the client. The various stages of the tender process appear to be dominated by the finance director, with audit committees having a restricted role. Tenders resulted in significant fee reductions in the year of change.

Item Type:Articles
Additional Information:Final version as accepted by the British Accounting Review supplied by the author.
Glasgow Author(s) Enlighten ID:Beattie, Prof Vivien
Authors: Beattie, V., and Fearnley, S.
Subjects:H Social Sciences > HF Commerce > HF5601 Accounting
College/School:College of Social Sciences > Adam Smith Business School > Accounting and Finance
Journal Name:British Accounting Review
Publisher:Academic Press
Copyright Holders:Copyright © 1998 Academic Press. Published by Elsevier Science Ltd.
First Published:First published in The British Accounting Review 30(3):261-289
Publisher Policy:Reproduced in accordance with the copyright policy of the publisher.

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