Statutory audit and corporate governance: Evidence from the small and medium-sized AIM companies

This thesis revolves around the “triangle relationship” among the shareholders, directors, and statutory auditors of a sample of small and medium-sized AIM companies of the London Stock Exchange for the financial periods covering 2010 to 2015 towards the demand and supply of statutory audit services, aiming to provide answers to the research questions of three empirical studies as follows. Firstly, what are the drivers of statutory audit fee? Secondly, what are the triggers of statutory auditor switching? Thirdly, what are the determinants of audit report lag?

The first empirical study of this thesis shows that the small and medium-sized AIM companies that formed audit committee tends to pay lower statutory audit fee while a newly appointed statutory auditor tends to charge lower statutory audit fee at the initial engagement. However, the dual role of nominated adviser cum broker or the newly appointed chief executive officer does not influence the level of statutory audit fee.

The second empirical study of this thesis reveals that the appointment of new chief executive officer or new nominated adviser can trigger the statutory auditor switching in the following year. In addition, the small and medium-sized AIM companies are more likely to switch statutory auditors when the level of statutory audit fee or non-audit fee is costlier. On the other hand, they are also more likely to switch statutory auditors if they have audit committee and received modified audit report.

The third empirical study of this thesis demonstrates that the extent of audit report lag for the small and medium-sized AIM companies is explained by the level of auditor-client negotiations and not by the corporate governance characteristics. The audit report lag is longer when the level of discretionary accruals is higher or when modified audit report is issued. However, the existence of audit committee, chief executive officer cum chairman, or nominated adviser cum broker does not enhance the financial reporting timeliness.

Other than contributing to the existing literature into the aspects of statutory audit for smaller listed companies, this thesis also provides the preliminary and entirely new evidence on the influential role of the unique advisory feature of nominated adviser when fixing the statutory audit fee, deciding the statutory auditor switching, and determining the audit report lag of AIM companies.