Our study investigates the relationship of independent auditor fees, hours and
quality, with particular emphasis on initial audits. Using audits of Texas independent
school districts, empirical results indicated specific low bailing relationships.
First year independent audits had statistically significant lower audit fees. Despite
the lower fees, quality was higher and more audit hours were utilized.
Introduction
Our study investigates the effect of independent auditor changes on fees,
independent audit effort (as measured by audit hours), and independent
audit quality. The empirical analysis is based on audits conducted by local
and regional public accounting firms of independent school districts (ISDs)
in Texas. We found that initial audits were associated with lower fees,
higher quality, and higher audit hours at the .10 level (one tailed). The
results also indicated that both audit fees and audit hours were significantly
related to audit quality in a manner consistent with the explanation
that audits are product differentiated in the market.
The empirical findings presented in our paper support previous research.
Our paper confirms that both audit fees and audit hours are
influenced by audit quality. The evidence suggests that independent audi-tors do not sacrifice quality to obtain a new audit client, though lower
audit fees were detected among initial audit engagements. Audit hours and
audit quality were higher among initial audits, confirming a conclusion
reported by Raman and Wilson (1992, p. 292) in their study of a sample of
U.S. cities over four years (1984-1987).