مقاله انگلیسی رایگان در مورد عوامل تعیین کننده حق الزحمه حسابرسی در بازار سرمایه گذاری جایگزین (هدف) در انگلستان – الزویر 2023

Abstract

     This study examines the determinants of audit fees for companies listed on the Alternative Investment Market (AIM) in the United Kingdom (UK), which is the secondary market of the London Stock Exchange for small and medium sized companies. AIM companies are expected to present different audit pricing challenges compared to fully listed firms. From an audit demand perspective, AIM companies exhibit different risk and governance characteristics while, from a supply perspective, the AIM is characterized by greater auditor choice than typically found in main markets. We find that audit fees in the AIM are negatively influenced by client liquidity and the length of listing. We also find that higher levels of audit committee disclosures are associated with higher fees, although there is no evidence that individual audit committee characteristics influence audit fees. After controlling for self-selection bias, we find that Big 4 auditors charge higher fees and this premium is especially pronounced for smaller firms. Our findings contribute to the audit pricing literature by illustrating that the determinants of audit fees depends on the institutional setting in which companies operate as well as highlighting the importance of specific risk measures and auditor size in the determination of audit fees for AIM companies.

Introduction

     Understanding the determinants of audit fees has been a significant research focus ever since Simunic’s (1980) seminal paper just over 40 years ago. Subsequent research highlighted several factors as having a reasonably consistent impact on fees, notably audit client size, complexity, and risk as well as certain aspects of the audit client’s governance, auditor–client engagement characteristics, and auditor size (Hay et al., 2006, Causholli et al., 2011, Hay, 2013, Hay, 2017). The objective of this article is to extend our understanding of the determinants of audit pricing by studying companies listed on the United Kingdom’s (UK) Alternative Investment Market (AIM). The AIM was established in 1995 by the London Stock Exchange (LSE) as a market for small and medium-sized companies to raise new capital. The approximately 800 companies listed on the AIM have a total market value of around £1,190 billion (bn) (London Stock Exchange, 2020). Therefore, the AIM represents a significant part of the UK quoted company sector.

     Despite AIM’s importance, little academic attention has focused on AIM companies with hardly any prior research looking at auditing issues. This article seeks to remedy this by investigating the determinants of audit fees in the AIM. Examining the determinants of audit fees in the AIM can improve our understanding of audit pricing in several respects. First, AIM companies are often relatively young companies without a significant financial track record and frequently list on the AIM to access finance in order to pursue relatively high-risk ventures. Therefore, they often lack a sustained record of performance, and this is expected to pose a particular challenge to auditors in terms of setting an appropriate audit fee. Furthermore, as noted by Gerakos et al. (2013), AIM companies underperform firms on other exchanges and experience a higher failure rate, suggesting that AIM companies may present a more significant and identifiable audit risk than more mature listed firms. Examining the impact of various measures of audit client risk in a market such as the AIM allows us to improve our understanding of how risk more generally impacts the determinants of audit fees.

Conclusions

     This study fills a gap in the audit pricing literature by undertaking an empirical analysis of the determinants of audit fees in the AIM. Studying audit pricing in the AIM is interesting for several reasons. First, companies on the AIM are generally perceived as being higher risk than their fully listed counterparts. We focus on both traditional measures of audit risk as well as some AIM-specific measures to try and ascertain how audit client risk impacts audit pricing in the AIM. Second, companies on the AIM are not subject to the comply or explain approach to corporate governance regulation. Therefore, they enjoy much greater freedom in choosing their own governance arrangements. Thus, we are interested to ascertain the impact of both board independence and audit committee characteristics on audit fees in such a lightly regulated listed environment. Third, unlike the fully listed markets in the UK and elsewhere, there is significant diversity of auditors in the AIM with the Big 4 auditors not enjoying a dominant market share. Consequently, we are interested to ascertain whether the Big 4 audit firms charge an audit fee premium in the AIM.

     Our analysis reveals that audit fees in the AIM are influenced by various measures of audit risk, specifically client liquidity and listing history. We find consistent evidence that auditors charge more to client firms with lower liquidity and with a shorter history on the AIM. In further sub-sample analysis, we find that for AIM companies with shorter listing history as compared with more established firms, audit fees are especially sensitive to a range of risk measures. We find evidence that greater audit committee disclosure is associated with more expensive audits, but find no evidence that audit fees are sensitive to individual audit committee characteristics. After controlling for auditor self-selection bias, we find that Big 4 auditors charge a premium for audits in the AIM. When we investigate this further, we find that Big 4 and non-Big 4 auditors emphasize slightly different variables in their audit pricing decisions.