Auditor changes and tendering: UK interview evidence

Beattie, V. and Fearnley, S. (1998) Auditor changes and tendering: UK interview evidence. Accounting, Auditing and Accountability Journal, 11(1), pp. 72-98. (doi:10.1108/09513579810207319)



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Competitive pressures in the audit market have led to aggressive fee renegotiation and tendering by companies. This paper reviews microeconomic tender theory and finds it to be of limited value in the audit context. Content analysis of semi-structured interviews conducted with the finance directors of 12 UK listed companies which had recently tendered and/or changed auditor are used to investigate the tender/change process. Contrary to popular belief, fee levels do not necessarily dominate the decision to change auditors, rather changes within the client company, audit staffing, and auditor's professionalism and competency issues dominate. Nor is the selection of a tender "winner" generally based solely on price, as predicted by tender theory and as would be expected when the consequences of audit failure do not fall on the directors. However, consistent with economic theory, the winning bid appears frequently to be too low, resulting in attempts by auditors to subsequently increase fees and resentment by the finance director. Directors generally appear to view the audit tender as relating to not only the attest function per se, but to a larger package of services concerning the financial reporting function. The relative importance of price versus non-price competition in auditor choice is found to vary across companies. Auditor choice is influenced strongly by both economic and behavioural factors, in particular, by directors' assessment of the quality of non-attest services and the expected quality of working relationships, in addition to price and audit quality.

Item Type:Articles
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:Accounting, Auditing and Accountability Journal
Publisher:Emerald Group Publishing Limited
Copyright Holders:Copyright © 1998 Emerald Group Publishing Limited
First Published:First published in Accounting, Auditing and Accountability Journal11(1):72-98
Publisher Policy:Reproduced in accordance with the copyright policy of the publisher

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