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| Auditor´s Remuneration and Audit Effort: Can Variable Audit Fee Components affect Audit Quality? |
Sabine Graschitz, Marco Haid, Claudia Müller
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Abstract:
This paper examines the impact of fixed and variable audit fees on the amount of audit effort invested. Furthermore, it investigates whether variable remuneration components are perceived as attractive. The study uses a case-based within-subject experimental research design. By manipulating the form of remuneration, it is examined how much audit effort is invested. In total, 93 persons participated in the experiment. The results show that variable auditor's remuneration is considered more attractive compared to fixed compensation. Moreover, data analysis indicates that a variable remuneration contract leads to higher audit effort compared to a fixed audit fee contract. This study contributes to the stream of literature dealing with audit quality. In particular, it offers new insights into the relationship between remuneration and audit effort. Although variable audit fees have the potential to increase audit quality, in many jurisdictions, they are prohibited by law. This study intends to stimulate a discussion and potential further developments concerning current regulations. This study uses students with a major in auditing as proxies for practitioners. Although previous studies have shown that students certainly make similar decisions as auditors, future research should integrate practitioners for further investigation of the topic. Also, future research should address the interaction of remuneration and person-specific factors such as experience or risk preference.
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