The Costs of Public Audit Oversight: Evidence from the EU

57 Pages Posted: 4 Jun 2020 Last revised: 7 Jun 2021

See all articles by Annita Florou

Annita Florou

Bocconi University

Yuan Shuai

University of Nottingham, Ningbo

Date Written: April 1, 2021

Abstract

We examine the audit pricing consequences of auditor inspections under the public oversight regime in the EU. Employing a staggered difference-in-differences design, we document an inspections audit fee premium during the post-inspection period when companies’ auditors are inspected by the national Public Oversight Body (POB). However, this effect masks significant cross-sectional variation. Specifically, we find that the increase in audit fees attributable to inspections is concentrated among POBs with sufficient human resources, where inspections occur both at the auditor’s and the regulator’s premises. Also, the effect of inspections on audit fees is evident only when the POB prohibits inspectors from joining an audit firm immediately after their departure or when the oversight system is funded by multiple stakeholders. Overall, our findings suggest that audit costs increase for clients of inspected auditors but only when inspections are more laborious, independent, and rigorous.

Keywords: POB, public oversight; inspections; audit fees

JEL Classification: G18, G38, K22, M41, M42, M48

Suggested Citation

Florou, Annita and Shuai, Yuan, The Costs of Public Audit Oversight: Evidence from the EU (April 1, 2021). Available at SSRN: https://ssrn.com/abstract=3595454 or http://dx.doi.org/10.2139/ssrn.3595454

Annita Florou (Contact Author)

Bocconi University ( email )

Via Roentgen 1
Milan, 20136
Italy

HOME PAGE: http://faculty.unibocconi.eu/annitaflorou/

Yuan Shuai

University of Nottingham, Ningbo ( email )

199 Taikang East Road
Ningbo, Zhejiang 315100
China

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