The purpose of this dissertation is to explore the influences of industry dynamic factors (e.g., peer selections) on a client’s subsequent decision to select the type of auditor (e.g., Big N versus non-Big N), following auditor turnover. More specifically, drawing on social norms and social learning theories, I develop testable implications and investigate whether and how industry dynamics have an incremental power in explaining auditor choice beyond traditional firm-specific variables documented in prior research. Using a large sample from years 1988 – 2012, I find that clients are more likely to imitate their industry peers’ prior selections to select the type of their succeeding auditors, consistent with the implications of social learning theory. I also find that clients in industries with stronger industry norms, as measured by a greater proportion of clients audited by Big N auditors in an industry, are more likely to select Big N auditors as their succeeding auditors, consistent with the implications of social norms theory. To my best knowledge, this is the first study to explore the impact of social dynamics measured at the industry level on auditor selection and provide large-sample evidence on the relations between industry dynamics and auditor selection at the firm level. Findings of this study provide insights into the dynamic process of auditor selection in which companies do not make auditor-selection decisions in isolation of one another as often posited in existing literature, contribute to the research on the determinants of auditor choice by incorporating industry dynamics into an agent-principal model, and provide a more comprehensive view of the phenomenon of auditor selection.

This dissertation examines whether managers influence corporate boards of directors in their auditor selection, change, and compensation decisions. This topic is important because it addresses concerns that the Sarbanes-Oxley Act of 2002 (SOX) is not effective in eliminating managerial influence over auditor engagement decisions and that it may provide a false sense of security to investors. These concerns are based on the implicit assumption that managers prefer weaker governance oversight and lower audit quality. However, empirical research testing associations between managerial influence and audit-related decisions post-SOX is scarce and generally guided by agency theory. Incorporating agency, stewardship, and resource dependence perspectives, I find that managerial preferences for auditor selection are not aligned. Specifically, CEOs positively influence the selection of higher quality auditors, whereas CFOs have the opposite effect. Further, CEOs who hold powerful roles as chairs of their companies' boards of directors appear to mitigate the negative influence of CFOs and inside directors on audit quality. CEOs serving in dual roles also oppose auditor turnover when lower earnings quality prompt higher demand for audit effort. Finally, my study provides some evidence that management exercises downward pressures on audit fees, suggesting that managers utilize their authority beyond the regulations established by SOX to negotiate auditor compensation.

The thesis deals with audit quality and auditor selection. These can indeed have a significant effect on audit quality. The introductory chapters of the thesis describe a quality in general form. It offers a basic characteristic of audit and auditor. It is deal with a legislative framework, necessary standards and another regulation of audit quality. Subsequently, it explains control system of audit quality in the Czech Republic and it describes watchdog bodies in the Czech Republic. After that the publication of Federation of European Accountants (FEE) from 2013 is analysed and criteria are presented. These criteria proceed from survey of FEE and determine the auditor selection. In conclusion it deals with application of discovered information on the individual practical examples of application for execution of audit or other audit services. This achieved information is used to create a sample form. This sample form of application for execution of audit could serve to improve of audit quality in the first stage of auditor selection. The ISO standards, book of Audit and the FEE publication are the main information source for the thesis.

Auditing has an important role in the corporate governance process and is essential in ensuring confidence in the reliability of financial information. It is important to understand the reasons why, given the costs involved, companies change their auditor and choose a particular level of audit assurance. To date, however, only a limited number of studies on auditor choice issues are available, especially in the UK setting. Further, since the downfall of Andersen, the audit market environment has changed significantly, creating a new audit environment to be researched. In light of these recent developments, the objectives of this thesis are to address both concentration and auditor choice issues. It is divided into two separate but interrelated parts. The first part of this thesis provides evidence on audit market concentration in the UK domestic listed company market from 1998 to 2003. The effect of Andersen’s demise on both audit market concentration and audit fees is examined. Using four different size measures (number of audits, audit fees, clients’ total assets and sales), three measures of concentration are calculated. Results show that the UK audit market has now clearly surpassed the tight oligopoly threshold and, despite auditing significantly fewer clients in 2003 than in 1998, the B5/4 managed to increase their fee dominance. In particular, the decline in B5/4 ‘number of clients’ market share was mainly due to their lower share of the newly-listed companies audit market. On the other hand, the slight increase in B5/4 audit fee market share was due to the net impact of leavers concentrating the B5/4 share and joiners diluting it. Voluntary switches to/from the B5/4 had a relatively small impact on B5/4 market share for both measures. Following Andersen’s acquisition by Deloitte & Touche, market levels of audit fee and audit fee rate (audit fee scaled by total assets) have increased markedly, suggesting that more audit effort is being expended as a way to restore confidence about audit quality after the damage caused by Andersen’s alleged misconduct. The acquisition has also contributed to a further increase in ‘audit fee’ market concentration for the 4-firm concentration ratio (CR4) and in the overall Hirschman-Herfindahl Index measure. Although, Deloitte & Touche gained significant market share in terms of both audit fees and number of audits through its acquisition of Andersen, it is PricewaterhouseCoopers that continues to hold the largest market share. Deloitte & Touche retained 93 former Andersen clients (74%), 21 (17%) moved to another B5/4 auditor and 11 (9%) chose a non-B5/4 firm. While former Andersen clients paid higher audit fees, in aggregate, the increase was, perhaps surprisingly, less than for the market as a whole. At the industry level, the B4 firms dominated all sectors, the highest non-B5/4 market share in any industry being just 8%. In 2003, PricewaterhouseCoopers was the leader in 18 out of 34 sectors. The second part of the thesis is divided into two separate studies – auditor change determinants and new auditor selection determinants. These studies use a sample of non financial auditor change companies to test logistic regression models of the determinants of auditor change and new auditor selection. The determinant variables include auditee, auditor and audit characteristics. This part also examines the sensitivity of results to alternative functional forms of the basic model specification. Two definitions of auditor quality – brand name auditor and specialism, are employed. Internal governance issues such as audit committee independence, the duality of chairman/CEO as well as the size/quality of the incumbent auditor were found to be significant determinants of auditor change. Expected future growth in the company, rather than past growth, and audit fee reduction were positively related to audit change probability. Result also suggests that companies changed auditor to improve the perception of auditor independence. By contrast, in the new auditor selection models, corporate governance variables did not appear to be important in determining a different quality (brand-name) auditor. Only the chairman/CEO duality variable was weakly and negatively significant, suggesting that duality is associated with a change to a lower quality auditor. Growing companies are more likely to change to a brand name auditor, consistent with the inability of smaller firms to provide services across an international market. Contrary to agency theory predictions, the results show that a company experiencing increased leverage is less likely to choose a B5/4 auditor, suggesting that B5/4 auditors are being selective in avoiding risky clients. Higher audit fees are paid to new auditors by companies that changed from non-B5/4 to B5/4, reflecting a B5/4 fee premium. However, the higher NAS fee result is contrary to initial expectations. Typically, far fewer variables were significant in the models with audit quality proxied by industry specialism. For the specialism models based on audit fee market share, there is counter-intuitive evidence that a company with a large number of subsidiaries is less likely to move to a specialist auditor from a non-specialist. New specialist auditors were more likely to be preferred when a company experienced an increase in current accruals or a reduction in leverage. In general, the results for these models were less strong and were dependent upon the specialist definition adopted. Finally, the thesis provides evidence that the choice of time variant model (ex-ante, contemporaneous or ex-post) made no significant difference to the overall results. The one exception concerns the ‘growth’ variable, where companies are found to change auditor in anticipation of future growth, rather than as a response to past growth. Further, the use of alternative proxy variables does not greatly influence the regression results. One important exception to this general observation concerns the brand name proxy. When brand name was defined as tier12 (to include Grant Thornton and BDO) the significance level was improved in all models. This suggests that, to some degree, Grant Thornton and BDO are viewed as quality service providers closer in quality to B5/4 than to other smaller audit firms.