Proceedings of 21st International Business Research Conference
10 - 11 June, 2013, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-25-2
Mohamed Drira*
This paper investigates auditor’s professional scepticism in initial and continuing audit engagements. Building on the audit fee model introduced by the seminal paper of Simunic (1980) and extended by Houston et al.
(1999) and Houston et al. (2005), this study develops multi-period audit fee models of initial and continuing audit engagements. Analyses of the models show that the auditor is more sceptical when evaluating an initial engagement compared to a continuing audit due to higher expected audit costs, especially start-up costs and audit investment. However, this result is tempered by the impact of longer audit tenure on auditor’s independence, at least in appearance, which may increase audit risk, residual litigation risk, and nonlitigation risk. Additional analyses demonstrate that auditor’s scepticism differential increases with the severity of the legal liability system. Moreover, the scepticism differential is more pronounced within Big
4 audit firms compared to non-Big 4 ones.
JEL Codes: M42
Track: Accounting
*Dr. Mohamed Drira, Faculty of Business Administration, University of New Brunswick at Fredericton, Canada.
Email: mdrira@unb.ca