• audit fees
• board oversight
• corporate reputation
• family ownership
• financial condition
• new audit engagement

This PhD dissertation aims at broadening the knowledge on the audit fees determinants focusing on new engagements. The audit pricing decision is crucial for the effectiveness of audit activities, as it supports client acceptance likelihood and contains litigation costs and reputational damage for audit firm. The audit pricing decision is also vital for the efficiency of audit activities, as it defines the audit effort to efficiently face the assessed audit risk. This dissertation consists in a collection of three papers.
The first article shows the results of a systematic literature review on the audit fees determinants in case of a new engagement. I summarized the client’s factors and the auditors’ conditions that according to theoretical and empirical studies more impact on the audit pricing. The literature review suggests that, in case of a new engagement, the client’s financial condition seems to be the most relevant factor that auditors use to define the amount of the audit fees.
In the second article, I analyze the impact of client’s factors on audit pricing. Specifically, I focused on the financial condition, the family control, and the quality of the board oversight of the potential audit client. So far, the literature showed controversial empirical results on the relationship between these variables and audit fees. Using a hand-collected dataset of 154 Italian listed companies, I find that the company’s financial results have a greater impact than the family control and the quality of the board oversight on the audit fee.
In the third article, I analyzed the impact of the client reputation on the audit fees. Using the same database of 154 Italian listed companies, I find that a bad firm reputation (measured using both RepRisk indicator and the negative media coverage) increases the audit risk and, thus, the audit pricing in case of a new audit engagement.
This PhD dissertation has both theoretical and practical implications. In particular, my findings broaden the literature about the determinants of the audit pricing in new audit engagements, by highlighting the client’s factors that have a positive/negative impact on the audit fees. Additionally, my findings support the discussion on the preferences of auditors regarding the source of information they use for assessing the audit risk and determining the audit price in the situation of an ex-ante information asymmetry. Specifically, in case of a new engagement, auditors prefer to use reliable information, i.e., already verified by prior auditors, to assess the potential client’s audit risk, instead of considering corporate governance variables that auditors cannot assess before starting an engagement. Finally, the analysis of the determinants of the audit fees can also provide indications for auditors, clients, and regulators to support their specific evaluations and decision-making processes. For example, the analysis of the determinants of the audit fees can help the auditors to improve their audit pricing decision model in order to carry out a balanced evaluation of the engagement profitability and of the potential risks the auditors are exposed to, when deciding to make a bid to a potential client.