Audit fees via an indirect payment channel and professional skepticism

Abstract

Purpose

This paper aims to examine the merit of an indirect payment system for audit fees, a system where an intermediary collects fees from the auditee and then pays this audit fee to the auditor.

Design/methodology/approach

Big 4 auditors and professional analysts in South Korea participated in an experiment and survey to investigate whether the change in the payment channel (from direct to indirect) of audit fees positively impacts auditors’ decision-making.

Findings

The authors find evidence that the indirect payment of audit fees is positively associated with professional skepticism.

Research limitations/implications

This paper, by highlighting the potential for alternate auditor payment channels to improve the quality of auditor judgments, motivates future research in this area.

Practical implications

Qualified by the need for further research, the potential merit in an indirect payment system may have implications for audit regulators.

Social implications

An indirect payment channel has the potential to improve public perceptions of the audit function, thereby elevating society’s confidence in auditor opinions and improving the effectiveness and efficiency with which scarce resources are distributed within society.

Originality/value

This study is one of the first that looks into a systematic change in audit fee payment channel and how an indirect payment system of audit fees impacts professional skepticism.

Citation

Kim, S., Kim, T., Pae, S. and Kim, S. (2018), "Audit fees via an indirect payment channel and professional skepticism", Managerial Auditing Journal, Vol. 33 No. 5, pp. 517-534. https://doi.org/10.1108/MAJ-12-2016-1490