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Abstract
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This study examines how audit fees change when companies switch audit firms. In particular, we are interested in the effect of engagement partners’ familiarity with clients on the changes in audit fees. On the basis of the unique data on individual engagement partners obtained from auditors’ reports in Japan, this study uses a more direct measure of partner–client familiarity than previous studies. By identifying engagement partners on both final and initial audits, we find that when audit fees increase after an audit firm switch, the ratio of engagement partners on initial audits who had been involved with the client before the switch has a negative impact on the increase in audit fees. On the other hand, when audit fees do not increase, no significant relationship is found between them. Furthermore, this study provides some evidence on the effect of the demise of ChuoAoyama, which was one of the Big 4 firms in Japan.
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