Auditor Extra-Billing and Client-Initiated Auditor Changes

This paper examines how auditor extra-billing and the quality of the auditor–board member relationship affect client-initiated auditor changes. Extra-billing is an auditor billing practice where the auditor invoices a higher amount than originally negotiated with the client. Although extra-billing is common in audit practice, it has not yet received much attention in audit research. Understanding audit as a professional service, we conceptualize extra-billing as a factor that is instrumental in creating or preventing bonding, which influences the repeat purchasing behaviour of a client, such as retaining an incumbent auditor. Seventy-eight board members responsible for audit matters completed a case that varied auditor extra-billing (no extra-billing or extra-billing) and the quality of the auditor–board member relationship (good or bad relationship). The results show that both an extra-billing and a bad auditor–board member relationship increase the likelihood of a client-initiated auditor change. These results have important implications for auditors, auditees and audit regulators.