Gender‐diverse audit partners and audit fee premium: The case of mandatory joint audit

• Date: 01 November 2018
• Author: Mehdi Nekhili,Tawhid Chtioui,Fahim Javed
• Published date: 01 November 2018
• DOI: http://doi.org/10.1111/ijau.12133

ORIGINAL ARTICLE

Gender‐diverse audit partners and audit fee premium: The case

of mandatory joint audit

Mehdi Nekhili

1

|Fahim Javed

1

|Tawhid Chtioui

2

1

Le Mans Université (GAINS‐ARGUMANS),

France

2

emlyon business school, Casablanca,

Morocco

Correspondence

Mehdi Nekhili, Le Mans Université (GAINS‐

ARGUMANS), Avenue Olivier Messiaen,

72085 Le Mans, France

Email: mehdi.nekhili@univ‐lemans.fr

This study empirically investigates the impact of auditor gender on audit fees in a

unique audit regulatory environment, namely France, where joint audit is mandatory

by law. Apart from the fact that male and female auditor engagement partners have

distinctive behaviors and style, the question also arises at to whether coordination

problems between two competing audit firms are exacerbated or mitigated by the

presence of a female auditor in the joint auditor pair composition. This issue could

be more challenging in the context of International Financial Reporting Standards

adoption, which increases audit task complexity, audit risk, and audit effort required

for an audit engagement. Using a matched sample of firms from the CAC All‐Shares

Index listed on Euronext Paris from 2002 to 2010, we find that, when a female audi-

tor is paired with a male auditor, the difference in audit fees stems not only from the

presence of the female auditor partner but also from male–female interaction within

the joint auditor pair composition. In a supplementary analysis, we show that the

impact on audit fees of both the presence of a female partner and male–female audi-

tor interaction is dependent, but in a different way, on the number of Big 4 audit firms

in the auditor pair composition.

KEYWORDS

audit fee premium, Auditor gender, IFRS, joint audit

1|INTRODUCTION

The existing literature on audit firm attributes has largely investigated

characteristics such as audit firm size (Big or non‐Big), industry special-

ization, and audit firm tenure (e.g., Francis & Krishnan, 1999). Those

studies implicitly assume that, within an audit firm, pricing of an

engagement is uniform across all offices and partners. However, in

recent years, the unit of analysis has shifted to city‐level offices

because, in practice, most dealings (e.g., establishing and managing

relations, conducting audits, signing audit reports) with clients are

conducted by individual partners from local offices (Chung & Kallapur,

2003; Ferguson, Francis, & Stokes, 2003; Reynolds & Francis, 2000).

Going one step further, an increasing number of studies have shifted

the unit of analysis to the audit engagement partners' attributes. The

motivation for such disaggregation of analysis runs counter to the

implicit assumption of homogeneity. The characteristics of engage-

ment partners differ from one another, and such differences may

impact audit planning and audit outcomes that are not explained by

audit firm attributes. Following the suggestion of DeFond and Francis

(2005), different studies show that the engagement partner's

characteristics, such as gender, industry expertise, and tenure, have

implications for audit quality and audit fees (Carey & Simnett, 2006;

Hardies, Breesch, & Branson, 2015; Ittonen & Trønnes, 2015; Ittonen,

Vähämaa, & Vähämaa, 2013; Zerni, 2012).

A growing number of empirical studies in the audit fee and audit

quality literature extend these findings. Ittonen et al. (2013) demon-

strate that gender of audit engagement partner is associated with

audit quality and financial reporting. Their empirical findings show that

firms audited by female audit partners have fewer abnormal accruals.

Hardies, Breesch, and Branson (2016) find that female audit partners

seem to express going‐concern opinions more often and that female

audit partners improve audit quality. Some recent studies that explic-

itly investigate the impact of audit engagement partners' gender on

audit fees find that female engagement partners are associated with

Received: 2 May 2017 Revised: 28 April 2018 Accepted: 18 June 2018

DOI: 10.1111/ijau.12133

486 © 2018 John Wiley & Sons Ltd Int J Audit. 2018;22:486–502.wileyonlinelibrary.com/journal/ijau

higher fees than their male counterparts (Hardies et al., 2015; Ittonen

& Peni, 2012).

Motivated by the literature on auditor gender and audit fees, we

explore the unique audit environment of France. Our study differs

significantly from recent studies on female audit fee premiums in that

the French audit environment is characterized by a long‐standing

joint audit requirement. In France, joint audit is mandatory by law,

and the names of the engagement partners can be identified. Previ-

ous studies on female audit fee premium were conducted in coun-

tries where only one auditor is involved in the audit process. The

issue of gender with regard to audit partnership may matter more

in a joint audit environment than in the context of single audit of

firms. In addition to the female audit fee premium highlighted in pre-

vious studies (Hardies, Breesch, & Branson, 2013; Ittonen et al.,

2013), collaboration between female and male audit partners within

the joint auditor pair composition may be different from that

between male joint audit partners, which may lead to different fees

paid to the auditing firms. Being less overconfident than men, female

audit partners may require extra audit effort, thus resulting in higher

audit fees (Owhoso & Weickgenannt, 2009). Further, female auditors

are more likely to outperform male auditors in processing inventory

evaluation information and are then significantly more efficient at

complex analytical procedures than male auditors (O'Donnell &

Johnson, 2001). In addition to the attitudinal differences between

male and female auditors, several advantages with respect to gender

diversity and team effectiveness can also be advanced (i.e., more

cooperation, better communication and negotiation skills, problem‐

solving capability). These advantages are particularly crucial in a joint

audit environment, where the lack of collaboration between audit

engagement partners may lead to insufficient exchange of informa-

tion and to inefficient audit (Gonthier‐Besacier & Schatt, 2007;

Ittonen & Trønnes, 2015; Thinggaard & Kiertzner, 2008; Zerni,

Haapamäki, Järvinen, & Niemi, 2012). To our knowledge, we are

the first to investigate the impact of audit partner gender on audit

fees in a joint audit context.

Furthermore, listed firms in France have since 2005 been required

to prepare their financial statements using International Financial

Reporting Standards (IFRS). The adoption of IFRS increases audit task

complexity and leads to greater audit effort and higher audit fees (De

George, Ferguson, & Spear, 2013; Kim, Liu, & Zheng, 2012). IFRS

implementation presents a challenging environment for both compa-

nies and their auditors and results in the emergence of two different

challenges: technical and human. In other words, IFRS are complex

to apply and their success requires good communication between

auditors and client firms. As well as the advantages accruing to gen-

der‐diverse teams (Hennessey & Amabile, 1998), female audit partners

are significantly more efficient at complex analytical procedures than

male audit partners (O'Donnell & Johnson, 2001). Consequently, IFRS

adoption offers a unique setting for exploring the extent to which gen-

der differences between joint audit partner compositions influence

the fees paid to the auditing firms.

In our empirical setting, we use a panel data set of CAC All‐Shares

Index firms listed on Euronext Paris from 2002 to 2010, resulting in an

unbalanced panel of 2,431 firm‐year observations. We first use pro-

pensity score matching (PSM), which controls for characteristics of

client firms audited by male joint audit partners and those audited

by male–female joint audit partners (hereafter gender‐diverse audit

partners). We find that when a female audit partner is paired with a

male audit engagement partner, they earn an audit fee premium of

11%. Our results show that the consideration of the gender of audit

partners is important for understanding the cost of joint audit engage-

ments. Furthermore, we examine the impact of the gender of audit

partner on audit fees in the context of IFRS implementation. We find

that IFRS adoption has a significant and positive impact on the pre-

mium earned by gender‐diverse audit partners. Finally, we find evi-

dence that the impact of gender‐diverse audit partners on audit fees

depends on the size of the audit firms in the joint auditor pair

composition.

Our paper is structured as follows. In Section 2 we discuss the

French institutional setting, and in Section 3 we review the literature

related to our study in order to formulate our hypotheses. In Section 4

we discuss our empirical models and describe the variables used in the

panel regressions. The results of our study are discussed in Section 5.

We then draw our conclusions and discuss the limitations of

our study.

2|THE FRENCH INSTITUTIONAL SETTING

Statutory auditors in France are referred to as Commissaires aux

Comptes. The French National Institute of Auditors (Compagnie

Nationale des Commissaires aux Comptes, CNCC) is the regulatory body

of auditors, supervised by the Ministry of Justice. Joint audit was a

common practice even before it was formally a legal requirement.

However, since 1966, listed companies have been legally required to

be audited by joint auditors (Francis, Richard, & Vanstraelen, 2009).

Specifically, joint audits are formally mandated by Article 223–3of

the legislation pertaining to commercial firms. On March 1, 1984,

Article 823–2 of the French commercial code extended the joint‐audit

requirement to all companies that prepare consolidated financial

statements (Ratzinger‐Sakel, Audousset‐Coulier, Kettunen, &

Lesage, 2013).

In a joint audit, at least two independent audit firms audit the

financial statements of a company, and sign and issue a single audit

report. Although certain countries allow joint audits on a voluntary

basis, joint audit is mandatory in France by law for all listed firms.

1

Piot (2007) argues that joint audit has two advantages. It provides a

cross‐review of each audit firm's diligence and it also reinforces each

audit firm's independence. Since the European Commission proposal,

much research has focused on the benefits and costs of joint audits.

2

Proponents claim that joint audits enhance audit quality by increasing

the auditors' independence and competence. Prior research also sug-

gests that audit engagement partners seek informal advice from their

peers to improve their audit judgment and justify their decisions

(Danos, Eichenseher, & Holt, 1989). As noted by Ittonen and Trønnes

(2015), joint audit partners possess considerable client knowledge,

and share liability. They can thus both benefit from informal

benchmarking, peer consultations, and communication. These authors

also empirically examine the “four‐eyes”principle in voluntary joint

audit setting and find that joint audit partners may improve audit

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