Auditor Extra‐Billing and Client‐Initiated Auditor Changes

ABSTRACT 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.