Essays on international auditing : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Accountancy at Massey University, Auckland, New Zealand

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This research investigates the determinants of both audit fees and the purchase of non-audit services using multi-country data. In the current globalized economy and in an environment of increased labour mobility, auditors play a crucial role in assuring the quality of financial reporting. At the same time, auditors could provide certain professional non-audit services to their audit clients. Understanding the factors influencing the demand for, or the provision of, audit and non-audit services is of interest to standard setters, corporate governance participants, and both individual and institutional investors, among others. Furthermore, under the current globalized environment, the role played by country-level institutional factors is especially important. This thesis is organized into three essays: (i) workforce environment, labour market flexibility, and audit fees; (ii) a literature review of auditor-provided tax services (APTS, one type of non-audit services); and, finally, (iii) book-tax conformity and the demand for APTS. In Essay One, using a dataset from 30 countries over the period from 2002 to 2017, I examine the effects of audit clients’ workforce environment on audit fees as well as the role that national labour market flexibility plays in this relationship. I find evidence that audit fees are significantly lower for firms with a good workforce environment, suggesting that auditors perceive such clients as less risky; as a result, auditors expend less effort and/or charge a lower risk premium. Furthermore, I find this effect to be stronger for firms in countries with a more flexible labour market. My study contributes to the international audit fee literature by identifying employee welfare as a distinct audit pricing factor, above and beyond the effects of overall corporate social responsibility practices. Essay Two reviews the empirical literature on the determinants and consequences of APTS and provide some directions for future research. I first summarize two theoretical but competing perspectives on the provision of APTS, namely, the knowledge spillover effect and the impaired independence effect. I then review the evolution of APTS-related disclosures and regulations in selected jurisdictions. My review of the determinants of APTS suggests that such decisions are related to the cost-benefit trade-off. I then review the literature on the consequences of APTS. This strand of the literature in the U.S. supports the knowledge spillover effect, but the findings in non-U.S. settings are mixed. The market perceptions of APTS in both the U.S. and non-U.S. settings suggest that market participants react to APTS negatively during uncertain periods, whereas non-archival studies suggest that the perceptions of APTS vary between stakeholder groups and with the types of APTS provided. Finally, Essay Three examines the impact of different levels of required book-tax conformity on audit clients’ demand for APTS. Utilizing a sample from 11 European Union (EU) countries between 2013 to 2019, I find evidence that listed firms in EU countries with a high level of required book-tax conformity are less likely to purchase tax services from their incumbent auditors, and also tend to pay lower tax service fees. Furthermore, I find these effects to be weaker after the implementation of the APTS-related EU Regulation that became effective from 2016. My findings contribute to the APTS literature by identifying a country-level institutional characteristic, i.e., the required level of book-tax conformity, as a potential determinant of appointing incumbent auditors as tax service providers. I also provide preliminary evidence of the effect of relevant EU regulation on changes in the demand for APTS.
Auditing, Auditors, Fees, Tax administration and procedure