Article2018

An Examination of Factors Driving Big 4 Audit Fee Premiums: Evidence from India's Audit Market

Joshy Jacob · Naman K. Desai · Sobhesh Kumar Agarwalla

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

SYNOPSIS This study examines fee premiums earned by Big 4 auditors in India and identifies the primary reason for such fee premiums. There are three primary drivers of Big 4 fee premiums. Big 4 auditors charge a fee premium for their reputation, for providing a superior quality of audit, and for indemnifying losses for a company's stakeholders. Since the risk of auditor litigation in India is relatively low, Big 4 premiums in India would not be driven by the need for auditors to indemnify losses. The results indicate that Big 4 auditors earn significantly higher fees in India and also that their clients enjoy significantly higher earnings response coefficients compared to non-Big 4 clients. However, there is no difference in the quality of audit provided by Big 4 and non-Big 4 auditors as measured by the magnitude of reported discretionary accruals.

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References

1998The Effect of Audit Quality on Earnings Management*1996The pricing of discretionary accruals 1995Auditor brand name reputations and industry specializations 2003Do Nonaudit Services Compromise Auditor Independence? Further Evidence 1999The Role of Big 6 Auditors in the Credible Reporting of Accruals 2009Big 4 Office Size and Audit Quality 2003Auditor Industry Specialization and Earnings Quality 1993Perceived Auditor Quality and the Earnings Response Coefficient

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