Essays on Audit Effort and Pricing

: Evidence from Inspection Regimes, Climate Disclosure Mandates, and the COVID-19 Crisis

Abstract

This thesis examines how auditors respond to external shocks and regulatory interventions that reshape the audit risk environment, focusing on three complementary settings in the United Kingdom audit market. It consists of three empirical essays that analyze changes in audit effort, risk assessment, and pricing following major external events: regulatory scrutiny from Financial Reporting Council audit inspections, the introduction of mandatory climate related disclosures under the Task Force on Climate related Financial Disclosures, and heightened uncertainty during the COVID 19 pandemic.
The first essay investigates the effects of Financial Reporting Council Audit Quality Review inspections on audit effort, measured using audit fees, key audit matters, and materiality. The results show no evidence that auditors increase effort for clients in priority sectors selected for inspection, while audit fees rise after an inspection occurs. Evidence on improvements in reporting quality is mixed, suggesting limited effectiveness of the inspection regime in strengthening audit outcomes.

The second essay examines whether clients climate related risk disclosures influence audit planning and fees. Exploiting the UK implementation of mandatory Task Force on Climate related Financial Disclosures reporting, the findings indicate that auditors disclose fewer key audit matters and apply higher materiality levels for mandatory adopters, consistent with lower perceived audit risk resulting from improved transparency. However, enhanced disclosure practices do not translate into better environmental performance.

The third essay analyzes auditors pricing and risk management responses during the COVID 19 pandemic, using the UK expanded audit report setting. The results show that auditors increase fees and effort, disclose more risk related audit matters, and reduce materiality during the pandemic, with heterogeneous effects across sectors reflecting differences in vulnerability to economic disruption.

Overall, this thesis shows auditors adapt to scrutiny and uncertainty, but responses are uneven and frequently fail to deliver consistent improvements in audit reporting quality outcomes.

Date of Award	28 Jul 2025
Original language	English
Awarding Institution	University of Bristol
Supervisor	Mariano Scapin (Supervisor), Zilu Shan (Supervisor) & Gilad Livne (Supervisor)