Audit fees in auditor switching

Abstract

The auditor work is examining that a company's financial statements faithfully reflect its financial situation. His wage, the audit fees, are not fixed among all companies, but can be affected by the financial and structural characteristics of the company, as well as the characteristics of the firm he belongs to. Another factor that may affect his wage in an auditor switching, which can be resulted from changes in the company that may influence the fees. This paper examines the effect nature of the auditor switching on his wage, and the factors of the company characteristics and the economy data which determine the wage at switching. A product of the research are tools for predicting and evaluating the auditor wage at switching. These tools are important for the auditor himself, but also for the company manager to correctly determine the wage due to the possibility that the quality of the audit work depends on its fees. Two main results are obtained. First, the direction of the wage change in the switching year depends on the economic stability of the economy. Second, the switching effect on the direction and the change size in wage depends on the change size in the company characteristics before and after switching - a large change versus a stable one. We get that forecasting the change size in wage for companies with a larger change is their characteristics is paralleled to forecasting a wage increasing. And vice versa, forecasting the change size in wage for companies with a stable change in their characteristics is paralleled to forecasting a wage decreasing. But, whereas the former can be achieved based on the company characteristics and macroeconomics factors, the predictably of these characteristics and factors is negligible for the letter.