The Pricing of Audit Services.pptVIP

 The Pricing of Audit Services:Theory and Evidence —— Dan A.Simunic 主讲人：付彪 Introduction The”Big Eight” firms as a group have been accused of monopolizing the market for audits.However,evidence on the issue is scanty and typically anecdotal.The evidence of the Staff Study itself is limited to concentration statistics, with the allegations relying on what has come to be called the “concentration doctrine”. In order to test the competitiveness of the audit industry using fee data,it is first necessary to develop a positive model of the process by which audit fees are determined. A second requirement for testing competition is the identification of a competitive benchmark.The typical approach in the industrial organization literature is to make cross-sectional interindustry comparisons of maket structute with performance . Assumptions of the Fee Determinatian Model I assume that both the auditee and auditor are risk neutral and seek to maximize their own expected profits each period. Thus, auditee management seeks to maximize the expected profits of the financial reporting entity, while the auditor seeks to maximize the expected profits of the auditing firm. The Auditee’s Problem When the Market for Audits Is Competitive An expected profit-maximizing auditee will seek to minimize the expected periodic costs of operating a financial reporting system. Min E(TC)=va+pq+E(d|a,q)(1-E(θ)) （1） E（C）=cq+E(d|a,q)E(θ) (2) minE(TC)=va+cq+E(d|a,q)E(θ)+E(d|a,q)(1-E(θ)) (3) or simply: mine(TC)=va+cq+E(d|a,q) (4) a=the quantity of resources utilized directly by the auditee in operating the internal accounting system q=the quantity of resources utilized by the auditor in performing the audit exarninatioza v=the per-unit factor cost of internal accounting system resources to the auditee c=the per-unit factor cost of external audit resour