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.

Full Text:



Abdulmalik, O.S. and A. Che Ahmad (2016). Boardroom diversity and audit fees: diectory ethnicity, independent and nationality, Audit financiar, 14(4):413-423.

Ballas, Apostolos A., and Irene Fafaliou (2008). Market Shares and Concentration in the EU Auditing Industry: the Effects of Andersen’s Demise, International Advances in Economic Research, 14(4):485–497.

Barkess, Lynn & Roger Simnett (1994). The Provision of Other Services by Auditors: Independence and Pricing, Journal of Accounting and Business Research, 24(94): 99-108. Retrieved from:

Beatty, Randolph P. (1989). Auditor Reputation and the Pricing of Initial Public Offerings, The Accounting Review, 64(4): 693-709.

Bell, T.B., Dooger, R., & Solomon, I. (2008). Audit Labour Usage and Fees under Business risk Auditing. Journal of accounting research, 16 (4): 729-760

Butterworth, S., and K.A. Houghton (1995). Auditor Switching: The Pricing of Audit Services, Journal of Business Finance and Accounting, 22, (3): 323-344.

Carson, Elizabeth and Neil Fargher (2007). Note on audit fee premiums to client size and industry specialization, Accounting and Finance, 47(3): 423-446.

Chamber of Auditors of Ukraine. – Annual reports to the Cabinet of Ministers of Ukraine (2008-2015). Retrieved from:

Chaney, Paul K., and Kirk L. Philipich (2002). Shredded Reputation: The Cost of Audit Failure, Journal of Accounting Research, 40(4): 1221-1245.

Choi, Jong-Hag, Jeong-Bon Kim, Xiaohong Liu, and Dan A. Simunic (2008). Audit Pricing, Legal Liability Regimes, and Big 4 Premiums: Theory and Cross-country Evidence, Contemporary Accounting Research, 25(1): 55-99.

Donnelly, D.P., D.O. Bryan, and J.J. Quirin (2003). Auditor acceptance of dysfunctional audit behaviour: An explanatory model using personal characteristics, Behavioural Research in Accounting, 15:87-110.

Figueroa, Carmen Rios (2013). The Effect Of Cultural Knowledge In The Perception Of Auditors: Internal Controls And Fraud, Revista Global de Negocios, 6(2):15-32.

Francis J., K. Reichelt, and D. Wang (2005). The pricing of national and city-specific reputation for industry expertise in the U.S. audit market, The Accounting Review, 80(1): 113-136.

Giroux, Gary, and Andrew McLelland (2008). A Municipal Audit Fee Model Using Structural Equation Modeling, The Journal of Applied Business Research, 24(3): 135-146. – Retrieved from:

El Ghoul, Sadok, Omrane Guedhami, Yang Ni, Jeffrey Pittman, Samir Saadi (2013). Does information asymmetry matter to equity pricing? Evidence from firms’ geographic location, Contemporary Accounting Research, 30(1):140-181.

El Ghoul, S., O. Guedhami, and J. Pittman (2014). Cross-country evidence on the importance of Big Four auditors to equity pricing: The mediating role of legal institutions. Retrieved from:

Hay, David C., Robert W. Knechel, and Norman Wong (2006). Audit Fees: A Meta-analysis of the Effect of Supply and Demand Attributes, Contemporary Accounting Research, 23(1):141–91.

Immordino, Giovanni, and Marco Pagano (2012). Corporate Fraud, Governance and Auditing, Review of Corporate Finance Studies, 1(1): 109-133

Jubb, C.A., K.A. Houghton, & S. Butterworth (1996). Audit fees determinants; the plural nature of risks, Managerial Auditing Journal, 11(3): 25-40.

Korotkiy, V., and I. Petrakov (2009). Methodlogical approaches for audit quality control in Ukraine, Journal of Chernihiv State Techological University, 38: 189-198.

Kreps, D., and R. Wilson (1982). Reputation and imperfect information. Journal of Economic Theory, 27: 253-279.

Lyon, John D., Michael W. Maher (2005). The Importance of Business Risk in Setting Audit Fees: Evidence from Cases of Client Misconduct, Journal of Accounting Research, 43(1): 133–151.

Moizer, P. (1997). Auditor Reputation: the International Empirical Evidence, International Journal of Auditing, 1(1): 61–74.

Nehme, Rabih, Abdullah Al Mutawa, and Mohammad Jizi (2016). Dysfunctional behaviour of external auditors the collision of time budget and time deadline evidence from a developing country, The Journal of Developing Areas, 50(1): 373-388.

Petrakov, I. (2013). Theory of contestable markets and audit in Ukraine: an identification problem, Journal of Chernihiv State Techological University, 68: 248-258.

Pong, Christopher K.M. and Geoffrey Whittington (1994). The determinants of audit fees: Some empirical models, Journal of Business Finance & Accounting, 21(8): 1071–1095.

Raluca, I. (2011). Audit Fee Econometrical Models: An Overview of the Auditing Research Literature, Annales Universitatis Apulensis Series Oeconomica, 13(2): 378-386.

Schatzberg, J. W. (1990). A Laboratory Market Investigation of Low Balling in Audit Pricing, The Accounting Review, 65(2): 337-362.

Shapiro, C. (1983). Premium for high quality products as return to reputation, Quarterly Journal of Economics, 98: 659-680.

Shulha, S. and I. Petrakov (2015). Integrated Reporting as Competitive Advantage for Ukrainian Companies: Determinants vs. Biases, Business-inform, 10: 26-30.

Shulha, Svitlana (2016) Models and factors of audit and NAS pricing: literature overview, Forthcoming in Business-Inform, 10.

Simunic, Dan A. (1980). The Pricing of Audit Services: Theory and Evidence, Journal of Accounting Research, 18(1): 161-190. Retrieved from:–05/18/38E1C260-622E-4BE0-A260-C2B107218D65.pdf

Sundgren, Stefan, and Tobias Svanström (2013). Audit office size, audit quality and audit pricing: evidence from small and medium-sized enterprises, Accounting and Business Research, 43(1): 31-55.

Wallace, W. A. (1989). Are audit fees sufficiently risk adjusted? Advances in Accounting 7 (Supplement): 3–37.

Ward, D. D., R. J. Elder, and S. C. Kattelus (1994). Further evidence on the determinants of municipal audit fees. The Accounting Review, 69 (2): 399–411.

Willenborg, M. (1999). Empirical analysis of the economic demand for auditing in the initial public offerings market. Journal of Accounting Research, 37 (1): 225–39.

Yuen, Desmond C.Y., Philip K.F. Law, Chan Lu, and Jie Qi Guan (2013). Dysfunctional auditing behaviour: empirical evidence on auditors' behaviour in Macau, International Journal of Accounting & Information

Management, 21(3): 209–226.



  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.