آیا شرکت های وابسته به بیگ فور هزینه حق حسابرسی را در بازارهای نوظهور بدست می آورند؟

The paper investigates whether Big-Four affiliated (B4A) firms earn audit premiums in an emerging economy context, using Bangladesh as a case. The joint determination of audit and non-audit service fees is also examined using a sample of 122 companies listed in the Dhaka Stock Exchange. Our findings reveal that although the B4A firms do not generally earn a fee premium in Bangladesh, they charge higher audit fees for clients not purchasing non-audit services. This suggests that the B4A firms may actually lower audit fees to attract non-audit services, and cross subsidizes audit fees through non-audit-services fees. The lack of a B4A premium implies that there is lack of quality audit in emerging markets. We also document that audit and non-audit service fees are jointly determined in Bangladesh. Thus, we provide evidence of joint determination of audit and non-audit service fees in an emerging economy context.

The paper investigates the existence of audit fee premiums for Big-Four affiliated (hereafter, B4A) audit firms in an emerging economy, using the case of Bangladesh. Like many other emerging economies, the audit market in Bangladesh is characterized by low levels of audit fees, concentrated ownership structure, and lack of demand for quality audit services. However, one distinctive aspect of the Bangladesh audit market relates to the way Big-Four audit firms operate in Bangladesh. The absence of Big-Four audit firms is not uncommon in many countries, particularly in emerging economies. In such cases, Big-Four firms tend to operate through the formation of a partnership with a local audit firm.3 However, despite no such legal restrictions, Big-Four firms do not operate in Bangladesh through their member firms. Rather, they carry out their operations in Bangladesh through ‘correspondent’ or ‘cooperating’ local firms. Another interesting aspect of the audit market in Bangladesh is the lack of market power of the B4A firms. Unlike in many other countries, Big-Four affiliate firms in Bangladesh do not enjoy a substantial market share, and only 17% of the listed companies are audited by the B4A. The absence of Big-Four firms in Bangladesh gives us the opportunity to investigate B4A audit fee premiums. We argue that Big-Four firms will choose quality local audit firms to represent them in Bangladesh, although these firms may not have the same quality control standards such as the Big 4. If the market differentiates quality of audit services, the B4A firms will earn substantial audit fee premiums. In line with Willekens and Achmadi (2003), we also argue that in the case of Bangladesh, where large audit firms do not have significant market share, presence of any such premiums will be due to product differentiation rather than market power. Our investigation of whether B4A earns audit fee premiums in Bangladesh is based on a sample of 122 companies listed in the Dhaka Stock Exchange during 2005 when Big-Four firms were absent in Bangladesh. We also investigate the joint provision of audit and non-audit services (NAS) in Bangladesh. Although a recent stream of research has investigated the determinants of audit fees in emerging economies, the use of NAS fees as an explanatory variable has been a notable omission (Joshi & Al-Bastaki, 2000). We explore this gap in the auditing literature by examining the joint provision of audit and NAS in an emerging audit market.4 The particular characteristics of the auditing market provide important context for our study. The World Bank (2002) has identified the lack of properly trained auditors in Bangladesh. This is a possible explanation for lack of demand for audit in Bangladesh (BEI, 2003). Given the circumstances it is interesting to investigate whether the Bangladeshi audit market differentiates between the B4A and other audit firms. Prior literature has acknowledged that audit firms, especially the Big 4, may charge lower audit fees to attract NAS. This tendency to cross subsidize audit services through NAS may be even more tempting in a country like Bangladesh, where demand for NAS is low. Unlike in developed economies, many listed companies in Bangladesh do not purchase NAS from their incumbent auditors. We argue that this lack of demand for NAS, coupled with prevailing low audit fees, may make audit firms even more dependent on their clients. This, in turn, may have serious implications for auditor independence, and consequently, for audit quality. Of the 122 sample companies used in this research, only 66 purchased NAS from their incumbent auditors. This gives us an opportunity to investigate whether the B4A adopts a different audit fee structure for clients that purchase NAS compared with clients that do not.

Auditor size is a significant determinant of audit fees in different countries. Basioudis and Fifi (2004) argue that large audit firms can demand higher audit fees either because of their brand name or due to product differentiation. Also, Willekens and Achmadi (2003) point out that in small audit markets, where large audit firms do not have significant market share and face fierce competition from local audit firms, audit fee premiums are likely to be driven by product differentiation rather than market share. These conditions are more likely to be present in emerging economies. We investigate whether large firms earn audit fee premiums in emerging economies using Bangladesh as a case study. Unlike in many other countries, Big-Four firms operate in Bangladesh through local affiliates who do not have ‘member’ status. As a result, local audit firms representing the Big-Four in Bangladesh (referred to as B4A in this paper) do not have the same quality control standards as the Big 4. Therefore, it is possible that these firms will not have the product-differentiation effect on audit fees, and hence, will not earn any premium in Bangladesh. The joint provision of audit and non-audit services (NAS), which has been the subject of much research in developed countries adds another important dimension to the study. We have limited knowledge about the (joint) determination of auditing an NAS in other institutional and regulatory contexts. The use of NAS may magnify the threats to auditor independence in an emerging economy context because of lower audit fees. In this paper, we explore the gap in the auditing literature by examining the joint provision of audit and NAS in an emerging market context using Bangladesh as a case study. Unlike in many developed economies, many listed public limited companies in Bangladesh do not purchase NAS from their incumbent auditors. This lack of demand for NAS, coupled with prevailing low audit fees, may make audit firms even more dependent on their clients. This, in turn, may have serious implications for auditor independence, and consequently, for audit quality. This paper has focused on investigating B4A audit fee premiums and the joint determination of audit and non-audit service fees in an emerging audit market. The absence of Big-Four firms, the lack of market power of B4A firms, and the fact that not all sample companies purchased NAS from their incumbent auditors allowed us to investigate B4A at the presence of joint provision of audit and NAS. Based on Willekens and Achmadi's (2003) argument, we hypothesized that the B4A will not earn significant audit fee premiums in Bangladesh because of their lack of market power and lack of product-differentiation. We also hypothesized that the B4A firms do not earn an audit fee premium in the presence of joint provision of audit and NAS. For the purpose of this paper, we use a sample of 122 companies listed on the Dhaka Stock Exchange in 2005. Of these companies, 66 companies purchased NAS from their incumbent auditors. Our findings reveal that although the Big-Four affiliate firms do not generally earn a fee premium in Bangladesh, they charge higher audit fees for clients not purchasing NAS. This suggests that the B4A firms may actually lower audit fees to attract NAS, and cross subsidize audit fees through NAS fees. Our analysis also suggests that audit and NAS fees are jointly determined in Bangladesh. Thus, we provide evidence of joint determination of audit and NAS fees in an emerging economy context. We also find that companies with concentrated ownership pay significantly low audit fees. As the Bangladesh corporate sector has high ownership concentration, our findings may offer an explanation for the low audit fees prevailing in Bangladesh. We also identify governance, foreign ownership, market categorization, and industry specifications as important determinants of audit fees in an emerging economy context. Our findings also offer an explanation for the existing levels of low audit fees in emerging economies, where the corporate sectors are characterized by family ownerships. Overall, our analysis suggests that audit and NAS fees in Bangladesh are jointly determined. The lack of a B4A premium for the overall sample may suggest a paucity of demand for quality audit. Another explanation for this may be that the local market does not really perceive the B4A representatives as providers of quality-differentiated products. Our research is based only on publicly available information hence we are not able to consider number of factors that may better explain the determinant of audit fees in emerging markets. Future research in this area may probe into identifying whether factors such as number of audit hours (see Knechel & Payne, 2001) and negotiations between auditor and the client have an effect on level of audit fees and joint determination of audit fee and non-audit service fees. Also, we used dummy variable for corporate governance, using the presence of audit committees as a proxy. As corporate governance evolves in emerging markets, future research can examine the effect of corporate governance and audit quality on audit and NAS fees. Our study contributes to the extant literature of audit pricing in emerging markets (for example, Simon et al. (1986) in India, Simon and Taylor (1997) in Pakistan, Simon et al. (1992) in Hong Kong; Rose (1999) in Malaysia; and Karim and Moizer (1996), Habib and Islam (2007), Khan et al. (2011), and Karim and Hasan (2012) in Bangladesh). Our paper is closely related to few prior studies that investigate the issue of audit pricing of emerging markets (see for example, Karim and Hasan (2012) and Khan et al. (2011)). However, we distinguish our study from previous research in several ways. Prior studies such as Karim and Hasan (2012) analyse the audit services market in Bangladesh. In particular, the authors explore the trend in audit fees over a period of 14 years and show that in real terms audit fees have actually been declining although in nominal terms it appears otherwise. The paper also examines the degree of inside ownership as a possible determinant of audit fees. However, the objective of our study is to investigate the existence of audit fee premiums for Big-Four affiliated firms in an emerging economy using Bangladesh as a case. Moreover, we examine the joint determination of audit and non-audit service fees. In addition to this, we also contribute to the existing literature by using a number of explanatory variables relating to audit fees – namely governance, ownership characteristics, and market categorization – that have not been tested in emerging economy setting before. Our findings may have implications for audit fee research as a whole, where Big-Four is used as a proxy for audit quality. Our analysis suggests that further care needs to be exercised in using the Big-Four as a proxy for audit quality in emerging economies. Another previous study by Khan et al. (2011) also investigates the audit pricing in Bangladesh. In particular, this paper focuses on the role of ownership structure in audit pricing in emerging economies. The study uses public ownership, sponsor ownership and institutional ownership as the key variables of interest. The findings of the study suggest that sponsor and institutional ownership could be important ownership variables while audit pricing in Bangladesh. Consistent with Khan et al. (2011) we also include a number of ownership variables in our audit fee model as control variables but not as hypothesized variables. Furthermore, unlike our study, Khan et al. (2011) fail to explore the joint determination of audit and non-audit services fees. The findings of our study suggest the presence of a B4A premium for companies that do not purchase NAS from their incumbent auditors. It implies that the B4A tend to lower their audit fees for clients who purchase NAS. We also extend existing research, such as Karim and Moizer (1996), Joshi and Al-Bastaki (2000), and Ahmed and Goyal (2005) by providing evidence of joint provision of audit and NAS in an emerging economy setting. In addition to this, we also contribute to the existing literature by using a number of explanatory variables relating to audit fees – namely governance, ownership characteristics, and market categorization – that are relevant determinants in an emerging economy setting.