Audit Price Stickiness, Auditor’s Change and Specialisation

ABSTRACT

This study examined audit price stickiness in the Nigerian audit market. Audit pricing has been widely investigated by researchers in Accounting who focused on its determinants. This study was motivated by the desire to provide new information on the price behaviour of audit fee to aid both the client and the auditor in their decisions on audit fee determination. The longitudinal research design was adopted. The population of this study was 171 firms quoted on the Nigerian Stock Exchange as at 31st December, 2017. A sample of 80 companies was selected using the purposeful sampling technique. Data for the study were collected from the annual reports and financial statements of the companies selected for the study. The data collected were described using descriptive statistic, while the panel data regression technique was used to test the hypotheses of the study. The study found that actual audit fees significantly differed from expected audit fees. The result further revealed that audit prices stickiness was not statistically significant when audit fees decreased. Considering the long-run differences between the increase and decrease in audit prices, it was found that audit prices increased more often than they decreased. The percentage of increase for a longer period of time reduced to 3.6% of the increase in the short run period. More so, the study found that a change of auditors was significant to upward audit price stickiness. And finally, audit market specialisation explained about 11.4% increase in audit price. The study concluded that audit prices were sticky (upward) in the Nigerian audit market, specifically when they increased. In addition, there was no significant price competition in the Nigerian audit market. Therefore, policy makers such as boards of directors and audit committees should initiate audit fee renegotiation immediately, they observe a downturn in activities.