Svitlana Shulha, Iaroslav Petrakov


The purpose of the paper is to analyse the origins of audit prices non-linearity in developing countries. We assume risk- and industry-sensitiveness of audit firms there due to the low institutional capacity, weak market forces development and questionable both auditors and clients ethical behaviour affecting market sustainability and implying additional challenges on stakeholder confidence. Methodology. We combine economic geography approach and reputation-averse phenomenon to explain endogenous volatility of average audit prices in Ukraine for the period of 2008-2015. Analysis of recent publications partially explains audit pricing non-linearity determinants that have both qualitative (brand and specialization) and quantitative (risks, manipulations, bribery) nature in developing countries. First, we qualify determinants of audit fees by inherent origin (endogenous, exogenous), stakeholder side (demand, supply), and market structure (concentrated, fragmented). Second, we summarize reputation challenges of audit business in developing countries. Third, we run empirical analysis of average prices in Ukraine for the period of 2008-2015 based on annual Chamber of Auditors of Ukraine reports data. Practical implications. Audit pricing models in developed countries are mainly exogenous and based on the auditor’s risk assessment. Vulnerability of markets and clients’ unethical behaviour makes audit pricing models more endogenous in developing countries. Value/originality. This is the first paper providing a better understanding of audit prices declination in Ukraine as a consequence of dysfunctional audit firms’ behaviour, institutional and market fragility, inherent to developing countries.


audit pricing, risks, developing countries, reputation, fee premium.

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