Download Impact of National Audit Market Regulation on Audit Fees and Big

Impact of National Audit Market Regulation on Audit Fees
and Big Four Premium: France vs. the UK
Paul André*, Géraldine Broye **, Christopher Pong*** and Alain Schatt ****
* ESSEC Business School Paris, ** EM Strasbourg,
*** University of Nottingham, ****University of Bourgogne
Version: 08 February 2010
We thank participants at the 2009 Earnet Conference in Valencia, the 2008 European Accounting
Association in Rotterdam, the 2008 French Accounting Association in Cergy-Pontoise, the 2008
American Accounting Association in Anaheim, and workshop participants at Concordia
University for their valuable comments. We thank in particular Jere Francis, Sophie Audousset,
Sudarshan Kumar Pillalamarri and Robert Knechel for helpful suggestions.
Corresponding author:
Paul Andre
Professor and Co-Head of Accounting and Management Control Department
KPMG Financial Reporting Co-Chair
ESSEC Business School
Cergy-Pontoise 95021 CEDEX
[email protected]
Impact of National Audit Market Regulation on Audit Fees
and Big Four Premium: France vs. the UK
Abstract:
We find significantly higher than expected audit fees in France and a very significant Big4
premium after controlling for well documented auditor, client and engagement attributes. While
both now follow International Financial Reporting Standards, International Auditing Standards,
the Eight Directive adopted in 2006, and recommendations of the European Commission to
ensure audit quality in Europe (EC, 2000, 2002, 2003), our results contradict theoretical models
and empirical results in cross country studies which suggest higher fees in countries such as the
UK with a stronger legal liability regime, greater investor protection, greater ownership
dispersion, and greater audit concentration. We conjecture that France’s unique audit
environment of two jointly responsible auditors and a fixed six-year mandate impose greater
costs to firms as suggested by a number of market participants in recent years.
Keywords: Audit fees – France – UK – Big Four
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1. Introduction
Over the past decade, several studies have been published on the impact of legal institutions on
the quality of accounting information around the world (Ball, Kothari and Robin, 2000; Hung,
2001; Leuz, Nanda and Wysocki, 2003; Burgstahler, Hail and Leuz, 2006, Bushman and
Piotroski, 2006; DeFond, Hung and Trezevant, 2007). This work is based especially on the
analytical framework developed by La Porta et al. (1997, 1998, 2000), which focuses on the legal
system of protection of shareholders. Their results generally show that the quality of accounting
information (income smoothing, conservatism, etc...) is higher in countries where the degree of
legal protection of shareholders is greater.
It is generally accepted that the quality of accounting information depends, at least
partially, on control exercised by the auditors. Indeed, the latter, which are paid to detect and
disclose accounting irregularities (DeAngelo, 1981), potentially play an important role in the
disclosure of accounting information by managers. Several studies, also part of the current Law
and Finance research developed by La Porta et al., have shown that the legal protection of
shareholders also affects the relationships between managers and auditors all around the world.
Specifically, it appears that earnings management is lower when shareholder protection
increases, provided that companies use the services of a Big Four (Big4, thereafter) auditor
(Francis and Wang, 2008). Furthermore, audit fees are higher in common law countries (Choi et
al., 2008) and in companies which are cross-listed if they are listed in a country where
shareholders are more strongly protected (Choi et al. 2009). These results reflect the higher risk
of litigation if auditors do not detect and disclosure accounting irregularities. This risk is
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particularly high for the Big4, which have ‘deeper pockets’ leading them to exercise greater effort
and to charge higher fees.
These results, although quite interesting, deserve further scrutiny. If the degree of legal
protection can explain differences between countries, it is possible that other institutional factors
may be at least as important. In particular, the specific regulation of the national audit market
(Magnan, 2008) may also explain the differences in audit fees across the world. In particular, in
countries where self-regulation of the profession is not the rule, the question of the government's
relationship with the audit profession arises. It is likely that auditors engage in lobbying with the
government to extract rents, and that governments grant some benefits, for example, to protect
local firms (Stigler 1971, Posner 1974, Peltzman, 1989; Shleifer, 2005).
The French audit market can be used to illustrate this situation. In a law enacted in 1966,
the French Government established the specific rules and regulations surrounding the conduct of
company audits. The three main rules are 1) the use of two auditors by listed companies that
publish consolidated accounts, 2) a legal term of office of six years and 3) the prohibition of
providing both audit and consulting services to a company (Baker, Mikol and Quick, 2001;
Gonthier and Schatt, 2007; Francis, Richard and Vanstraelen, 2009). These rules are likely to
increase auditor independence, since management exerts less pressure on the auditors, compared
to cases where one auditor is hired for a period of one year. This law, however, also means the
potential of rents for the auditors and, consequently, higher costs for businesses. First, the
presence of two auditors increases coordination costs, including the hours spent to define the
terms of engagement, to debate contentious accounting and auditing issues, and to summarize the
results of their work. Second, although there is a lead auditor, both are jointly responsible/liable
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for the job. Third, there is no possibility to renegotiate the terms annually at the best price or
switch auditors offering better value.
This article aims to verify whether the inclusion of another institutional factor, that is the
national regulation of the audit market, better explains the differences in audit fees and the Big4
premium between countries than the level of statutory protection of shareholders. For this, we
compare the audit fees of 360 French companies with those paid by 337 British companies. An
analysis of these two countries is interesting because they differ significantly. In the UK,
shareholders are supposed to be well protected and, as regards to the audit market, companies
contract with a single auditor on a yearly basis. In France, the degree of shareholder protection is
significantly lower and the Company Law requires two auditors involved for a minimum of six
years.
On the one hand, if the degree of shareholder protection is the main explanatory factor,
then we should see, all other things being equal, that audit fees are significantly higher in the UK.
This result would reflect the existence of a higher risk premium in the UK, the higher risk of legal
action by shareholders dissatisfied with the work of the auditors. On the other hand, if the
national regulation of the audit market is the key explanatory factor, then the audit fees should be
higher in France. This result would confirm the importance of the added coordination costs
between the two auditors, added joint liability costs and the lack of price pressure related to the
statutory term of six years and no cross-subsidization from consulting activities. The lack of a
significant difference in fees between France and the UK would suggest a compensation
phenomenon between the higher costs in the UK resulting from the degree of legal
protection/dispersed ownership/audit concentration and the higher cost in France related to the
specific national regulation of the audit market.
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Our results show that, on average, audit fees are higher in France than in the UK,
reflecting the importance of considering national regulation of the audit market when comparing
audit fees paid throughout the world. Further analysis shows that differences are mainly valid for
a specific market segment: the major French companies audited by two Big4 auditors. For these
companies, the fees paid largely and significantly exceed those paid by large UK businesses
audited by a Big4. This result may be explained by the greater costs of coordination between two
large Big4 audit firms. When comparing UK Big4 audits with French One Big4-One Non Big4 or
when comparing UK Non Big4 audits with French Two Non Big4 Audits, it appears that no
difference exists, thereby suggesting that the country-specific added costs seem to compensate
themselves. Finally, we document that the Big4 premium in France is much greater than that in
the UK.
The contributions of this article are many. First, the paper highlights the importance of
other institutional factors other than the legal protection of shareholders, namely the national
regulation of the audit market, to explain differences in fees between countries. Our work thus
confirms the study of Haw et al. (2004), which show that other institutional characteristics seem
to play a significant role in explaining the quality of accounting information around the world.
Second, it provides interesting information on the cost of specific rules adopted in the
audit market in France. While the French stock market is one of the major stock markets in the
world, the audit fees have not been studied thoroughly in previous international comparisons. For
example, the international study by Choi et al. (2008) does not include France.
Third, our results are of interest to regulators. In France, voices are being heard to seek
international harmonization of the audit market rules, including the removal of the joint audit
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regime. In the UK, the idea of introducing a joint audit, synonymous with greater auditor
independence and lower market concentration, is being raised. Our results show that the joint
audit system can significantly increase costs to companies. This regime, which amounts to quasirents to the auditors, does not necessarily improve the work of auditors and quality of accounting
information. After the transition to IFRS, harmonization of European audit market could prove
beneficial for French companies.
The remainder of the paper is organized as follows. In section 2, we present the
institutional setting. In section 3, we specify our theoretical framework and our hypothesis. In
section 4, we explain our methodology: we describe the sample, the empirical model and the
different variables. In section 5, we present and discuss our results. In the final section, we
conclude.
2. Institutional Setting
There is a continued willingness by the European Union to harmonise the audit market, as
evidenced by the Communications/Recommendations of the European Commission to ensure
audit quality in Europe (EC, 2000, 2002, 2003)1 and by the adoption of the Eight Directive in
2006 (proposed in 2004)2. Furthermore, the EU is examining the issue of auditor responsibility
and liability. However, despite this evolution, many differences remain across European
countries.
1
“Quality Assurance for the Statutory Auditor in the EU” in 2000, Commission recommendation “Statutory
Auditors’ Independence in the EU” in 2002, and Commission Communication “Reinforcing the statutory audit in the
EU” in 2003.
2
Directive 2006/43/EC of 17 May 2006 on statutory audits of annual accounts and consolidated accounts.
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While much has been written on the UK audit services market structure (e.g., Pong 1999,
2004), less is known of the French system3. In France, regulators have set up unique regulation to
ensure auditors’ independence and audit quality. One of these is the length of the mandatory
audit: six years versus one year in most other countries such as the UK or the US. Besides,
France is the only country to require joint auditors for listed companies4. Proponents of the joint
audit regime as expressed by the French regulator, when adopting this regime in 1966, was that
the joint audit better protects shareholders by ensuring mutual control between the auditors.
Further, the six-year terms is viewed as increasing independence from client pressures.5 Another
difference is the long standing practice in France that auditors are not allowed to provide both
audit and consulting services to a company. The new 2003 Financial Security Law has again reemphasized this requirement. This principle of separation has been much stricter in France than
in English-speaking countries (Mikol and Standish, 1998). In the UK, auditors are not forbidden
from providing management or taxation consulting services to their audit clients.
Overall, these benefits should lead to better quality information. Surprisingly, recent
empirical research highlights higher earnings management in France than in the UK and countries
with better investor protection (Leuz, Nanda, and Wysicki 2003; Haw, Hu, Hwang, and Wu
2004; Coppens and Peek 2005; Burgstahler et al. 2006).
Although there are voices suggesting the implementation of these specificities in the UK6,
on the opposite side of the Channel, many in France have begun to question the two audit firms
3
Recent papers are examining various aspects of the French joint-auditor context. See for example GonthierBesacier and Schatt (2007), Piot (2007), Audousset-Coulier (2009), and Francis, Richard and Vanstraeleen (2009).
4
Denmark dropped the joint auditor requirement in 2001.
5
More recently, the accounting profession further required that there must be a balanced division of the work
between the two auditors (H3C, 2007; NEP 100). This is to ensure that the joint auditor requirement is an efficient
auditor monitoring system and that it reinforces auditor independence (Gonthier-Besacier and Schatt, 2007).
6
Hugues, J., “The small numbers causing a big stir”, Financial Times, Sep. 06, 2007.
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system arguing that it adds supplemental costs by doubling resources at certain stages of the
process without necessarily any added benefits. For example, Patrick Gounelle, President of Ernst
& Young France and Southern Europe, states that the double auditor regime costs more (in the
order of 20%) since it doubles the number of people at meetings. Furthermore, the two auditors
are jointly responsible, something that pleases companies, regulators and judges, but implies that
one firm could be held liable for the actions of the other.7 Daniel Bouton, past president of
Société Générale and author of a famous French report on corporate governance published in
2002, recently generated quite an uproar when he indicated during a meeting on audit quality
organized by IOSCO, that he did not see the interest in the joint auditor regime.8
3. Cross-country differences in audit fees
Starting with Simunic (1980), most studies in this area of audit fees have been based on US data
(Hay, Knechel, and Wong 2006). This is mostly because audit fees information is publicly
available only recently in the most countries. In France, for example, the disclosure of audit fees
for listed companies became compulsory in 2003.9 As a result, studies on the audit services
market so far have been mostly country specific and there have only been limited international
comparative.
7
Interview Option Finance, no 937, 18 July 2007.
Interview Option Finance, n°939, 2 July 2007.
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This disclosure requires companies to distinguish (a) between fees paid for statutory audits and those paid for other
services (non audit fees)9, and (b) between the specific fees paid to each of the two independent auditors. In
addition, the audit services should be classified as either the services for ‘auditing, certification, inspecting individual
and consolidated accounts’ or ‘other related assignments’ (such as specific, non-recurring assignments, the auditing
of forecasted accounts, specific certification procedures, etc.). There should also be clear differentiation of nonauditing services into those that are related to legal, financial, or social advice and those that are related to
information technology and internal auditing procedures.
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7
Haskins and Williams (1988) is one of the first cross-country studies examining audit fee
differences in a sample from the UK, Australia, New Zealand, Ireland and the US. Their study
focuses on how individual country firm-specific models vary. Taylor and Simon (1999) are the
first to introduce country specific macro variables in their comparison between 20 countries:
litigation propensity, disclosure and regulation10. Their results indicate that increased litigation
pressures, institutional traditions of increased disclosure, and increased regulation put upward
pressures on audit fees.
As discussed previously, Choi et al. (2008) develop a model explaining cross-country
differences in audit fees and Big4 premium. They test three hypotheses. One, audit fees increase
with the strength of a country’s legal liability regime; this because the auditors is more likely to
bear liability in case of audit failure in stronger regimes. Two, given a legal liability regime, Big4
auditors charge higher audit fees than non–Big4 auditors; this because the legal liability costs are
greater for Big4 so they exert more effort. Three, the Big4 fee premium decreases as a country’s
legal regime shifts from a weak to a strong regime; this because the Non Big4 faces greater risk
of audit failure so increases fees to compensate greater risk of litigation. They test their model on
15 countries11 and find results supporting their three hypotheses.
As pointed out earlier, most classifications schemes (Wingate 1997; La Porta et al. 1997,
1998; Djankov et al. 2008) rank France has having a weaker legal regime, lesser litigation, lesser
enforcement and weaker investor protection. Table 1 summarizes the scores for France and the
UK of the most used classification schemes on legal and ownership attributes. Based on these
10
Taylor & Simon’s (1999) sample includes Australia, Canada, Chile, Great Britain, Hong Kong, India, Ireland,
Japan, Korea, Malaysia, Mexico, New Zealand, Nigeria, Pakistan, Singapore, South Africa, Spain, Sri Lanka, United
States, Zimbabwe.
11
The Choi et al. (2008) paper’s sample includes Australia, Denmark, Hong Kong, India, Ireland, Italy, Malaysia,
New Zealand, Norway, Pakistan, Singapore, South Africa, Sweden, United Kingdom and United States.
8
characteristics, on the Choi et al. (2008) paper and on more intuitive conjectures in papers going
has far back to Taylor and Simon (1999), we should observe higher audit fees in the UK
compared to France but higher Big4 premium in France compared to the UK.
[ INSERT TABLE 1 ]
Further, following Palmrose (1986), audit demand (and consequently audit fees) is
expected to increase with diffuse ownership. It is well-known that France has higher ownership
concentration than the UK (Faccio and Lang, 2002; La Porta et al., 1999). For example, Faccio
and Lang (2002) found the presence of many controlling shareholders in France, while most
listed companies in Britain have no reference shareholders holding more than 20% of capital. In
France, a family holding at least 20% of the shares was present in almost two thirds of
companies. This other difference between France and UK also allows us to expect higher audit
fees in UK compared to France.
To date, studies examining audit fees around the world have not considered the impact of
the country specific regulation of the audit market on audit fees. We believe that this institutional
factor is very important, especially in the French case, where we argue that this regulation is
costly for companies for three main reasons. First, the presence of two auditors increases
coordination costs such as the time spent to define the terms of engagement, debate accounting
and auditing issues and to summarize the results of their work. Second, although there is a
generally a lead auditor, both are jointly responsible/liable for the job. It means that one auditor
assumes the risk that the other auditor fails. Third, the inability to renegotiate the terms annually
limits the possibility for the manager to renegotiate an audit service at the best price.
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Finally, it’s possible that audit fees in UK and in France are the same for different
reasons. In fact, a compensation phenomenon could exist between the higher cost in the UK
resulting from the higher degree of legal protection and the higher cost in France related to the
specific national regulation of the audit market. We now test this hypothesis.
4. Methodology
Before presenting the results of this empirical study, the sample selection process is discussed as
well as our model and variables, namely the audit fees and their main determinants (the most
commonly used in the literature and others more specifically adapted to the joint audit practice in
France). The chosen sample year is 2005 since public companies in both countries have adopted
IFRS.
4.1. Sample
The initial dataset consists of all the publicly quoted industrial companies on the UK
London Stock Exchange and the Paris Stock Exchange in 2005. Financial firms were excluded in
our analysis because of their differences in financial reporting. The amount of audit fees was
hand-collected in the available annual reports. Financial information was obtained from the
Amadeus and the Fame database. We only included a company if we were able to collect all the
information we needed to test our model. Our final sample includes 337 UK companies and 360
French companies.
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4.2. Audit Fee Model
Hay, Knechel and Wong (2006) evaluate and summarize the most commonly used
independent variables in audit fee models. The variables can be classified into three categories:
client attributes, auditor attributes and engagement attributes. Client attributes include size of
clients, complexity, leverage, profitability, industry, internal controls and governance. Auditor
attributes include auditor quality, auditor change and auditor location. Engagement attributes
include report lag, busy season, audit problems and non-audit services. They note that several
variables, especially the variables that represent engagement attributes, show no clear pattern to
the results. They also point out that only few researchers have had access to data for the variables
of engagement attributes and some of the variables of client attributes (internal control and
governance). Based on data availability, we use the following functional model:
Audit fees = f([Country & Auditor attributes [Big4uk, NonBig4uk, AtleastaBig4fr or
OneBig4fr and TwoBig4fr, NonBig4fr], Client attributes[size, nature of the
level of debt, profitability, number of subsidiaries], Engagement
audited assets,
attributes[Dec. 31st year-end,
non-audit fees]).
4.3. Dependent variables (Audit fees)
The audit fees are the amount paid by firms to their auditors to certify the firm’s
consolidated accounts. The information related to the fees paid to auditors for the total sample is
provided in Table 2 (Panel A). Audit fees averaged €1.848 million by firm. There is, however, a
broad disparity in fees, since for half of these companies the total spent amounts to less than €395
thousand with the lowest fees being €9 thousand and the highest almost €60 million. The skewed
distribution explains why we use the log of audit fees.
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[ INSERT TABLE 2 ]
4.4. Independent variables
4.4.1 Country & Auditor attributes
[Big4uk, NonBig4uk, AtleastaBig4fr or OneBig4fr and TwoBig4fr, NonBig4fr]
Hay et al. (2006) note that 49 out of 85 studies show a significant positive impact of
Big4/five/six/eight on audit fees while only three have documented a significant negative
relationship. In Table 3, we show significant differences between the UK and the French audit
market. In the UK (panel A), 88.1% of the companies choose a Big4 (Big4uk) and pay them
about 98.3% of the total amount of audit fees and 99% of the non audit fees. With the exception
of Ernst &Young, the (other) Big4 audited more than 20% of the 337 companies of our sample.
PricewaterhouseCoopers was the biggest auditor with 28% of the mandates and 38% of the audit
fees. Non Big4s (NonBig4uk) only audit 11.9% of firms, representing only 1.7% of audit fees and
1.0% of non audit fees. Grant Thornton is the largest Non Big4 in the UK with only 2.4% of all
audits.
With two auditors on French audit mandates, we have various possible combinations: two
Big4s (TwoBig4fr), one Big4 and Non Big4 (OneBig4fr) and two Non Big4s (NonBig4fr). We
can also talk about mandates with at least one Big4 (AtleastaBig4). From table 3, panel B, we see
that the French market is less concentrated than the UK. There is at least one Big4 in 73.9% of
the French companies (17.2% TwoBig4fr and 56.7% OneBig4fr) and no Big4 in 26.1% cases.
Nevertheless, the two Big4 earn 58.9% of the total audit fees and 52.1% on the non audit fees.
Looking at mandates rather than audits (360 firms * 2 auditors = 720 mandates), non Big4 hold
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298 (94*2 + 204) mandates out of the 720 (or 41.4% of the mandates). Mazars, Grant Thornton
and Constantin are the major non Big4s.
[ INSERT TABLE 3 ]
4.4.2. Client attributes
4.4.2.1. Size of Audited Company
Hay et al. (2006) note only a very few cases where this variable is not shown to have
significant positive impact on audit fees. Table 2 (Panel B) shows that the average company size
was €4,523 million. Again, there was a high disparity among the 697 companies in our sample
with half of the companies had a size below €341 million. The largest firm had total assets
amounting €188,032 million and the smallest €2 million12.
4.4.2.2. The Nature of the Audited Assets
Complexity is expected to increase audit work and fees. We used the following two
proxies for complexity: the ratio “current assets to total assets” and the number of subsidiaries.
Verification of these complex assets requires additional audit efforts (for example, physical
inspection) and experience. Hay et al. (2006) document that the majority of studies find that there
is a positive and significant relationship between these variables and audit fees. In our sample, the
average current assets to total assets ratio was 54% (median 54%). On average, each company
had 69 subsidiaries.
4.4.2.3. Level of debt
12
Sales exhibited a similar pattern with an average of €3,519 million. We also use the total sales of the companies,
but the results are not affected, since there is a high correlation (0.85) between total assets and total sales.
13
Hay et al. (2006) find that most studies document a significant positive link between
leverage and audit fees. The average level of the ratio “total debt to total assets”, which enables
an assessment of the audited company’s insolvency risk, was 61% (median of 62%). The level of
leverage ranged from 1% to 220%.
4.4.2.4. Profitability and Loss
In our audit fee model, we also included the variable profitability which is measured as
the relationship between a company’s operating income and its total assets. Poor results increase
auditor risk and therefore fees, a result which is evidenced in Hay et al. (2006). In our sample, the
mean of the ratio was 6.9%. However, there was a high disparity among companies. In a similar
fashion, firms presenting a loss increase auditor risk. There are 15.3% of firms in that situation.
4.4.3. Engagement attributes
4.4.3.1. Financial Year End
Auditors are known to have a busy season since a large number of firms have 31
December as their fiscal year end. It has been suggested that audits of companies which have a
non 31 December year end may be less costly. However, only a few studies have supported this
suggestion. Nevertheless, we included this variable in our analysis. The variable selected is
dichotomous and equals to 1 if the company closes its accounts on December 31 and equals to 0
otherwise. We find that 451 companies (65%) in our sample have a year end of 31 December.
4.4.3.2. Non Audit Fees
There are two views as to the impact of non-audit fees on audit fees: one suggests lower
audit fees because of cross subsidization and the other suggest greater audit fees since non-audit
work usually involves changes in an organization. Most studies surveyed by Hay et al. (2006)
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find a significant positive relationship. In our data sample (Panel C), the total amount of nonaudit fees was €895 thousand which represented on average 59.5% of the total audit fees.
5. RESULTS
5.1 Univariate Results
5.1.1 Country & Auditor attributes
Table 4 presents summary statistics of the France and the UK data samples. Panel A of
table 4 shows that on average companies in France paid higher audit fees than companies in the
UK. In France, the average audit fee was €2.2 million while in the UK, the average was €1.4
million. These differences are statistically significant with a t-test (Student), but not with the non
parametric test (Z-test). It reflects the non-normality of the distribution. When we use the log of
audit fees, this problem disappears and we can conclude that there is no difference between the
amounts of audit fees paid by French and UK companies.
Table 5 breakdown results further by sub-groups. Table 5, panel A, presents descriptive
statistics for the Big4uk, NonBig4uk, TwoBig4fr, OneBig4fr (as for AtleastaBig4fr) and
NonBig4fr. Panels B and C present differences and Scheffe multiple comparison tests. On
average, the difference between Big4Uk and AtleastaBig4fr is around 1.3 million euros and
significant. But more precisely, the difference between Big4uk and OneBig4fr (one Big4 and one
NonBig4) is on average 131 thousand euros higher in the UK but not significant, whereas the
difference between Big4uk and TwoBig4fr is on average 6.1 million euros higher in France which
15
is highly significant. The difference between NonBig4uk and (two)NonBig4fr is on average 148
thousand euros greater in France but is not significant.
Table 5 also allows a look at the Big4 premium by country. On average, the Big4
premium in the UK (Big4uk – NonBig4uk) is 1.4 million euros (but not significant). The Big 4
premium in France, however, is much greater and highly significant. The difference is on average
2.6 million euros greater when we have AtleastaBig4fr but 7.3 million when we have TwoBig4fr.
These results are presented graphically in figure 1 in a fashion similar to Choi et al.
(2008). Our univariate results suggest that there is a huge premium paid by French companies
with two Big4. It may be that this result simply reflects a “company-size-effect”: the biggest
French companies choose two Big4 (Francis et al., 2009). But, if that was the case, it would
suggest that the biggest French companies are bigger than their UK counterparts, which is not the
case as discussed below. Multivariate analysis will determine whether this difference holds once
we control for all well know determinants of audit fees.
[INSERT TABLE 4 & 5 AND FIGURE 1]
5.1.2. Client attributes
Panel B in table 4 compares the clients attributes between the French and the UK datasets.
The result of a parametric t-test indicates that there was no significant difference in the size of the
firms in our French and UK data sample. However, the results of non-parametric z-test suggest
that French companies were smaller. When we use the log of assets, the problem of non
16
normality of the distribution disappears and we can conclude that French companies are
significantly smaller than their UK counterparts.
There were also significant differences in asset composition between UK and French
companies. In France, the current ratio (current assets to total assets) was higher than in UK (59%
on average vs. 49%). These differences are explained by the activities of the companies in our
sample. French and UK are not exactly in the same industries. This result leads use to introduce
industry dummy variables in our model. Our results indicate that the French companies were
more complex. They had a significantly higher number of subsidiaries than the UK companies
(85 on average vs. 53).
There was also some evidence that the French companies had a higher debt to total assets
ratio than the UK companies but the difference was not economically significant (62% on
average vs. 60%). Finally, the average profitability of the French firms was lower (5.4% on
average vs. 8.6%).
5.1.3. Engagement attributes
There was substantial difference between the French and the UK companies with respect
to the amount of non-audit fees paid. In France, a company on average paid non-audit fees of
€121 thousand (5.8% of the audit fees) while the equivalent figure in the UK was €1.721 million
(116.9% of the audit fees). This reflects the different regulatory environments as discussed
earlier. In France, there are strict guidelines regarding the use of a company auditor for
consultancy services.
Finally, only 46% of the UK companies but 82% of the French companies had December
31 as their year end. This difference is statistically significant.
17
5.2 Multivariate results
Results of the univariate analysis suggest that there were significant differences in the
auditor, client and engagement attributes between the French and the UK samples. We then
carried out multiple regressions to control for these factors. Following earlier studies in audit
fees, we used the logarithm transformation of audit fees. Table 6 Panel A presents the results of
the regression analysis.
[INSERT TABLE 6]
5.2.1 Country & Auditor attributes
Models 1 & 2 reflect basic regressions with a country dummy (France) and a Big4
dummy. Model 1 documents a country premium, audit fees are significantly greater in France by
21.6% (100(exp(0.196)-1) and a significant Big4 premium of 57.3%. However, when we
introduce a Big4*France interaction, we see that the French premium is limited to Big4 audits.
The French Big4 premium is 54.5% and significant whereas the British Big4 premium is only
22.0% but still significant.
Models 3 & 4 allow us to better differentiate the different sub-groups. Panel B & C
specifically presents the differences in coefficients for the sub-groups in model 3 & 4,
respectively. We find two main results. First, there is again a significant premium for Big4
compared to non Big4 in the UK (Big4uk vs. NonBig4uk) in the range of 19.2% in model 3 and
21.2% in model 4. Second, this premium is more significant in France. In regression 3 and Panel
B, the coefficient for the variable AtleastaBig4fr is significantly greater than the coefficient for
18
the variable Big4UK by 16.5%. Taken together, we see that the French Big4 premium is a
significant 53.9% (AtleastaBig4fr vs. NonBig4uk).
In model 4, we further break down the premium. We show that the Big4 premium in
France is more important than in UK only when there are two Big4s (39.5% and significant)
whereas it is 10.7% but not significantly when we have only one Big4 (and a Non Big4). When
comparing Non Big 4 audits in the UK to (two)Non Big4 in France, the difference is not
significant but it is 34.2% a significant when compared to cases with one Big4 and one Non Big4
(OneBig4fr).
These results suggest that the characteristics of the local audit market do help understand
fee differences beyond shareholder legal protection regime. Looking at ‘pure’ Non Big 4 audits,
fees are not different, contrary to the Choi et al. (2008) argument that audit fees should be greater
in countries with higher shareholder legal protection. Our results suggest that the higher legal
protection costs in the UK are matched by higher coordination costs in France. Looking at ‘pure’
Big4 audits, these are much more costly in France than the UK. Beyond the added coordination
costs of the jointly responsible two auditor regime, the fixed six year mandate may also make the
French market less competitive. Consistent with Choi et al. (2008), the Big4 premium is much
greater in France.
5.2.2 Client attributes
Consistent with the results of the audit fees literature, the coefficient of the size variable
(logarithm of total assets) was positive and statistically significant (table 6, all models in panel
A). Therefore, an increase in auditee size leads to a significant increase in audit fees. The
coefficient of the variable current ratio was positive but not statistically significant. Consistent
19
with the literature that uses the number of subsidiaries as a proxy for complexity and therefore
greater audit fees, we found a positive and significant coefficient in our regressions.
The debt ratio, a proxy for solvency and liquidity risk, is positive and statistically
significant. Like in the majority of papers surveyed by Hay et al. (2006), we did not find a
significant relationship between audit fees and the level of profitability variable (ROA), although
lower profitability would likely increase audit risk and therefore audit fees. Unprofitable
companies do pay larger fees (variable Loss).
5.2.3 Engagement attributes
We obtain a positive result for the impact of busy season on audit fees. The result
suggests that auditors charged higher fees in the busy season. We also find a negative and
statistically significant relationship between audit and non-audit fees. The result is consistent with
the cross subsidization hypothesis. Our result supports the notion that auditing generates
knowledge that is useful for management advisory service or that consultancy service reduces the
marginal cost of auditing and the demand for audit is relatively elastic (Simunic,
1984).Surprisingly, many of the earlier research studies as surveyed by Hay et al. (2006) find the
opposite result. Given French auditors cannot supply non audit services; this may also partially
explain the country results above.
5.2.4 Other possible explanations and sensitivity analysis
We explore some possible alternate explanations.
i) Conversion to IFRS
20
One particularity of the year 2005 is that it is the first year under IFRS. It is possible that a
certain proportion of fees in 2005 related more directly to the transition. If French firms had to
expand more effort in converting to IFRS, something arguable since IFRS are further from
French GAAP than UK GAAP, this could explain the differential. Under perfect conditions, we
would like to subtract the IFRS conversion fees from the audit fees to get ‘pure’ audit fees. This
is somewhat possible in France since many firms disclosed separately the cost of conversion; the
same is not possible in the UK where no such detail is supplied. Nevertheless, we rerun our
regression with ‘pure’ audit fees for French companies (excluding the conversion costs when
stated) and present these in Table 7. Since the differences between audit fees and “pure audit
fees” are small (ratio is 91%), it is not surprising to see that the findings are consistent with our
earlier results.
[INSERT TABLE 7]
ii) GDP
Choi et al. (2008) include GDP to control for standard of living and reservation
compensation for audit partners and staff and find a positive and significant relationship in a
number of their models. Based on the CIA World Factbook, the GDP of France in 2006 was
slightly lower than that of the UK (32,800 vs. 35,500 in 2008 constant US dollars). This goes
against finding our results.
iii) Market concentration
Higher market concentration can allow audit firms to charge higher fees. Consistent with Piot
(2007) and Broye (2007), we find that concentration is lower in France than in the UK (Pong and
Burnett, 2006). The lower concentration can be explained by the joint audit system, which allows
local audit firms to audit large listed companies. Traditionally, it is argued that high concentration
21
implies less competition, as it favours major firms’ anti-competitive behaviour. Reduced
competition may in turn lead to higher prices on the market. In the UK, Oxera (2006) provides
some evidence of increasing fees as auditor concentration increased. This again goes against
finding our results. 13
6. CONCLUSION
According to Choi et al. (2008), in countries with weak legal environment, such as
France, audit fees should be lower because audit firms support less liability risk. Our results
suggest that this conclusion needs to be nuanced. If the litigation environment plays a crucial role
in audit pricing, other institutional factors may also need to be taken into account. For example,
specific mechanisms could be put in place to ensure audit quality but involving greater audit fees.
This appears to be the case in France: while investors are less protected and litigation risk is more
limited than the UK; audit requirements are higher (e.g. jointly responsible two auditor regime
and six year mandates). As highlighted by Magnan (2008), our results confirm that the
organisation of the audit market in a country is of considerable importance for cross-country
research.
We find higher than expected audit fees in France compared to the UK. Looking at ‘pure’
Non Big 4 audits, fees are not significantly different, contrary to the Choi et al. (2008) argument
that audit fees should be greater in countries with higher shareholder legal protection. Our results
suggest that the higher legal protection costs in the UK are matched by higher coordination costs
in France. Looking at ‘pure’ Big4 audits, these are much more costly in France than the UK.
13
However, prior studies in other countries provide evidence of a negative relationship between concentration and
audit fees (Pearson and Trompeter, 1994; Ivancevich and Zardkoohi, 2000; Willekens and Achmadi, 2003).
22
Beyond the added coordination costs of the jointly responsible two auditor regime, the fixed six
year mandate may also make the French market less competitive. We find these results even
though the UK had greater GDP and much greater audit concentration.
Consistent with Choi et al. (2008), the Big4 premium is much greater in France and the
premium for two Big4s is quite significant. Four reasons may explain this phenomenon. First, it
is possible that the premium charged for auditor reputation is higher in France. As the ability to
sue auditors is limited, third parties give higher weight to auditors’ reputation for safeguarding
quality, and firms are incited to hire Big4 to signal their quality. Such a situation could illustrate a
substitution effects: there is more weight on auditor’s reputation when legal environment is weak.
Second, this premium could be caused by higher costs of coordination between the two auditors,
or to the redundancies imposed by the two auditor regime in France, especially for the big French
companies. Third, it could also be due to the differences in the requirement of a company auditor
to render consultancy services. Specifically, as French auditors are not allowed to supply non
audit services to their clients since 2003, given that this requirement has been reinforced by the
“Code de déontologie” in 2005, one can wonder if audit work is more broadly defined to include
non audit activities. Fourth, another possible explanation, if we consider audits as a credence
good, i.e., a good where an expert knows more about the quality a consumer needs than the
consumer himself, is that the presence of two Big Four firms introduces even more information
asymmetry and therefore costs.14
At this stage of our investigation, we can’t know precisely the reasons for the higher than
expected fees in France. Additional work is needed, with various methodologies (e.g. surveys)
14
We are grateful to Robert Knechel for invoking this possibility. See Dulleck and Kerschbamer (2006) for a general
discussion and Causholli et al. (2009) in an auditing setting. Although the latter invokes the risk of undersupply,
credence goods can lead to oversupply and reputation premiums.
23
that could add to our understanding of the factors which explain the difference in audit prices. In
addition, time-series and panel data which will become available as we move on in the IFRS
common environment will also allow us to examine the evolution of these differences.
Our results have significant implications for regulators in both countries. In the UK, there
has been much debate on choice in the audit services market. In particular, the Financial
Reporting Council (‘FRC’) set up a market participants group to look into the issue with a view
to make a useful contribution to the wider international debate on audit market concentration. In
its report, the market participants group set out recommendations which it believed would
enhance the efficiency of the market and in so doing mitigate the risks associated with a firm
leaving the market. The group recommended that the FRC should provide independent guidance
for audit committees and other market participants on considerations relevant to the use of firms
from more than one audit network (FRC, 2007). Given that the joint auditor system is being used
in France and our evidence suggests that audits in France are more expensive than that in the UK,
and better understanding of the costs and benefits need be taken into consideration by companies
and by regulators.
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27
Figure 1: Average Audit fees (thousands of euros) by subgroup
French Big4 includes audits with at least one Big4
28
Table 1
Comparing France and UK legal attributes
France
UK
Civil (Code) law
Common law
6,22
10,00
2
4
3
5
- Efficiency of judicial system
8.00
10.00
- Rule of law
8.98
8.57
- Corruption
9.05
9.10
- Risk of expropriation
9.65
9.71
- Risk of contract repudiation
9.19
9.63
- Anti-self dealing index
0.38
0.95
- Ownership concentration
0.38
0.19
- Revised antidirector rights
3.5
5.0
3
5
-legal enforcement
8.7
9.2
-importance of equity market
9.3
25.0
-ownership concentration
0.24
0.15
Wingate’s (1997) litigation index
(15 highest litigation risk)
La Porta et al. (1997) antidirector rights
(5 highest shareholder rights)
La Porta et al. (1998) antidirector rights
(5 highest shareholder rights)
La Porta et al. (1998) enforcement variables
Djankov et al. (2008)
Leuz et al. (2003)*
-outside investor rights
*constructed from LLSV (1998) data
29
TABLE 2
Descriptive statistics for the 697 companies
Mean
Median
Std Dev
Min
Max
Audit fees (€’000)
1,848
395
4954
9
59,962
Ln(audit fees)
6.18
5.98
1.50
2.19
11.00
Total assets (€’000,000)
4,523
341
16,953
2
188,032
Ln(Total assets)
12.98
12.74
2.11
7.60
19.05
Current assets / total assets
0.54
0.54
0.22
0.02
0.99
69
23.00
153
0.00
1,834
Total debt / total assets
0.61
0.62
0.23
0.01
2.20
Operating income / Total assets
0.069
0.073
0.113
-0.871
0.438
895
103
6,168
0.00
151,616
0.595
0.160
1,317
0.00
19.000
Panel A : Audit fees variables
Panel B : Client attributes
Subsidiaries
Panel C: Engagement attributes
Non-audit fees (€’000)
Non-audit fees / Audit fees
30
TABLE 3
The French and the UK audit services market
Panel A: UK audit market
Deloitte
Audit fees
Non Audit fees
EY
Audit fees
Non Audit fees
KPMG
Audit fees
Non Audit fees
PwC
Audit fees
Non Audit fees
Grant Thornton
Audit fees
Non Audit fees
Other
Audit fees
Non Audit fees
Total UK
Audit fees
Non Audit fees
1 BIG
Audit fees
Non Audit fees
0 BIG
Audit fees
Non Audit fees
Total
(€’000)
Mean
(€’000)
Median
(€’000)
SD
N
% No. of audits
% Audit fees
% Non audit fees
85,784
88,837
113,490
202,043
91,657
87,515
182,954
195,597
2,150
1,713
5,897
4,235
481,932
579,939
473,885
573,991
8,047
5,949
1,129
1,169
2,415
4,299
1,160
1,108
1,926
2,059
269
214
184
132
1,430
1,721
1,596
1,933
201
149
500
418
441
378
441
306
588
441
139
107
101
66
428
346
499
428
108
73
2,080
2,321
8,721
22,080
1,818
1,741
4,570
5,098
431
334
230
247
4,292
8,794
4,546
9,349
276
264
76
76
47
47
79
79
95
95
8
8
32
32
337
337
297
297
40
40
22.6%
17.8%
15.3%
13.9%
23.5%
34.8%
23.4%
19.0%
15.1%
28.2%
38.0%
33.7%
2.4%
0.4%
0.3%
9.5%
1.2%
0.7%
100%
100%
100%
88.1%
98.3%
99%
11.9%
1.7%
1.0%
31
TABLE 3 (continued)
Panel B: French audit market
Deloitte
Audit fees
Non Audit fees
EY
Audit fees
Non Audit fees
KPMG
Audit fees
Non Audit fees
PwC
Audit fees
Non Audit fees
Grant Thornton
Audit fees
Non Audit fees
Mazars
Audit fees
Non Audit fees
Constantin
Audit fees
Non Audit fees
Other
Audit fees
Non Audit fees
Total France
Audit fees
Non Audit fees
2 BIG
Audit fees
Non audit fees
1 BIG
Audit fees
Non Audit fees
0 BIG
Audit fees
Non Audit fees
Total
(€’000)
Mean
(€’000)
Median
(€’000)
SD
N
% No. of Audits
% Audit fees
% Non audit fees
196,738
13,450
266,996
15,614
122,997
4,448
109,100
7,132
5,474
240
57,150
1,858
12,640
494
35,179
324
806,274
43,558
474,774
22,710
298,670
19,797
32,830
1,051
2,490
170
2,495
146
1,430
52
1,948
127
274
12
1,121
36
790
31
115
1
2,240
121
7,658
366
1,464
97
349
11
451
1
489
10
289
0
504
3
100
0
403
0
230
0
71
0
365
0
2,892
134
364
0
192
0
4,658
405
4,365
324
3,403
153
3,013
257
640
38
1,512
81
1,138
66
144
6
5,479
345
10,371
564
3,061
299
609
46
79
79
107
107
86
86
56
56
20
20
51
51
16
16
305
305
360
360
62
62
204
204
94
94
11.0%
24.4%
30.9%
14.9%
33.1%
35.8%
11.9%
15.3%
10.2%
7.8%
13.5%
16.4%
2.8%
0.7%
0.5%
7.1%
7.1%
4.3%
2.2%
1.6%
1.1%
42.4%
4.4%
0.7%
100%
100%
100%
17.2%
58.9%
52.1%
56.7%
37.0%
45.5%
26.1%
4.1%
2.4%
32
Table 4 Difference between the French and the UK companies
France (N=360)
UK (N=337)
Mean
Mean
Median
t test
Z test
Median
Panel A: Audit fees variables
Audit fees (€'000)
2,240
365
1,430
428
2.16**
-0.79
Log (Audit fees)
6.19
5.90
6.18
6.06
0.10
-0.79
Total assets (€'000 000)
4,669
240
4,367
488
0.23
-383***
Log (Total assets)
12.73
12.39
13.26
13.10
-3.32***
-3.83***
Current assets/Total assets
0.59
0.60
0.49
0.50
6.53***
6.42***
Subsidiaries
85.18
18.50
52.66
28.00
2.83***
-2.20**
Total debt/Total assets
0.62
0.64
0.60
0.60
0.98
1.67*
Operating income / Total assets
0.054
0.063
0.086
0.086
-3.84***
-4.83***
121
0
1.721
346
-3.45***
-17.92***
0.058
0.000
1.169
0.782
-12.27***
-22.19***
Panel B: Client attributes
Panel C: Engagement attributes
Non audit fees (€’000)
Non audit fees / Audit fees
33
Table 5 Panel A
Audit fees (thousands euros)
Comparisons Big4-NonBig4 across countries
UK
France
At least one
2,907.7
532.0
30.0-48,100.0
266
Only one Big4
Big 4
Mean
1,595.6
1,464.1
Median
498.5
364.2
Range
17.6-59,961.8
30.0-23,700.0
Count
297
204
Two Big4
7,657.6
2,892.3
97.3-48,100.0
62
Non Big 4
Mean
201.2
349.3
Median
108.1
191.6
Range
16.2-1,323.5
9.0-3,800.0
Count
40
94
34
Table 5
Panel B
Table of differences and Scheffe Multiple Comparison Test
Audit fees (thousands euros)
Big4uk
NonBig4fr
AtleastaBig4fr
NonBig4uk
+1,394.4
Big4uk
+148.1
-1,246.3
+2,706.5***
+1,312.1**
NonBig4fr
+2,558.4***
* significant at 10%; ** significant at 5%; *** significant at 1%
Table 5
Panel C
Table of differences of and Scheffe Multiple Comparison Test
Audit fees (in thousands euros)
NonBig4uk
+1,394.4
Big4uk
Nonbig4fr
+148.1
-1,246.3
OneBig4fr
+1,262.9
-131.5
+1,114.8
TwoBig4fr
+7,456.5***
+6,062.1***
+7,308.4***
Big4uk
NonBig4fr
OneBig4fr
+6,193.6***
* significant at 10%; ** significant at 5%; *** significant at 1%
35
Table 6 Panel A
Log(Audit fees) regressed on Auditor, Client and Engagement attributes
This table reports OLS regressions of audit fees on auditor, client and engagement attributes (coefficient, t stat
and probability). Sample of 697 French (360) and British (337) audit engagements of publicly listed firms in
2005 with available data on selected auditor, client and engagement atributed.
(1)
(2)
(3)
(4)
France
0.196
-0.122
2.80***
0.97
Big4
0.453
0.199
5.08***
1.80*
Big4*France
0.435
2.94***
NonBig4fr
-0.102
-0.101
0.78
0.78
Big4uk
0.176
0.192
1.61*
1.74*
AtleastaBig4fr
0.329
2.91***
OneBig4fr
0.294
2.60***
TwoBig4fr
0.525
3.57***
Log(Asset)
0.585
0.585
0.597
0.589
25.60***
25.90***
27.02***
25.83***
Current ratio
-0.017
-0.044
-0.030
-0.050
0.10
0.27
0.18
0.31
Debtratio
0.723
0.763
0.740
0.750
5.71***
6.04***
5.75***
5.84***
ROA
-0.294
-0.302
-0.318
-0.313
1.08
1.14
1.19
1.18
Loss
0.139
0.134
0.148
0.143
1.68*
1.64
1.78*
1.71*
Subsidiaries
0.001
0.001
0.001
0.001
3.50***
3.31***
3.52***
3.23***
31DecDate
0.115
0.121
0.111
0.112
2.12**
2.25**
2.03**
2.06**
Nonauditfees
-0.102
-0.097
-0.099
-0.098
2.97***
2.81***
2.82***
2.82***
Industry
Incl.
Incl.
Incl.
Incl.
Constant
-2.332
-2.121
-2.243
-2.150
6.76***
5.98***
6.42***
6.01***
Observations
697
697
697
697
Adjusted R-squared
0.83
0.84
0.83
0.83
F test
164.70***
160.22***
152.19***
148.71***
t statistics using robust estimation vce (hc3)
* significant at 10%; ** significant at 5%; *** significant at 1%
36
Table 6 Panel B
Differences in coefficients (model 3) and t test results
Number in parenthesis is exact % difference based on following transformation:
100*(exp(coefficient)-1)
NonBig4uk
Big4uk
NonBig4fr
+0.176*
(19.2%)
NonBig4fr
-0.102
+0.278**
(-9.7%)
(32.0%)
AtleastaBig4fr
+0.329***
+0.153**
+0.431***
(39.0%)
(16.5%)
(53.9%)
* significant at 10%; ** significant at 5%; *** significant at 1%
Big4uk
Table 6 Panel C
Differences in coefficients (model 4) and t test results
Number in parenthesis is exact % difference based on following transformation:
100*(exp(coefficient)-1)
NonBig4uk
+0.192*
(21.167%)
Big4uk
Nonbig4fr
-0.101
(-9.697%)
-0.293***
(-25.398%)
OneBig4fr
+0.294***
(34.178%)
+0.102
(10.738%)
+0.395***
(48.438%)
TwoBig4fr
+0.525***
(69.046%)
+0.333***
(39.515%)
+0.626***
(87.012%)
Big4uk
NonBig4fr
OneBig4fr
+0.231**
(25.986%)
* significant at 10%; ** significant at 5%; *** significant at 1%
37
Table 7 Panel A
‘Pure’ Audit fees regressed on Auditor, Client and Engagement attributes
This table reports OLS regressions of ‘pure’ audit fees on auditor, client and engagement attributes (coefficient, t
stat and probability). Sample of 697 French (360) and British (337) audit engagements of publicly listed firms in
2005 with available data on selected auditor, client and engagement atributed. ‘Pure’ audit fees exclude French
fees that can be considered related to IFRS conversion (British breakdown of fees does not allow this exclusion).
NonBig4fr
Big4uk
AtleastaBig4fr
(1)
Lnpureaudit
-0.158
1.22
0.188
1.72*
0.237
2.10**
OneBig4
TwoBig4fr
Lnasset
0.591
27.47***
Currentratio
-0.033
0.21
Debtratio
0.761
6.05***
ROA
-0.343
1.25
Loss
0.131
1.55
Subsidiaries
0.001
3.59***
31DecDate
0.098
1.82*
Nonauditfees
-0.097
2.79***
Industry
Incl.
Constant
-2.194
6.40***
Observations
697
Adjusted R-squared
0.83
F test
150.65
t statistics using robust estimation vce(hc3)
* significant at 10%; ** significant at 5%; *** significant at 1%
(2)
Lnpureaudit
-0.158
1.22
0.203
1.84*
0.205
1.82*
0.417
2.84***
0.583
26.34***
-0.052
0.32
0.770
6.14***
-0.339
1.24
0.126
1.48
0.001
3.30***
0.099
1.84*
-0.096
2.78***
Incl.
-2.109
6.01***
697
0.83
146.95
38
Table 7 Panel B
Differences in coefficients (model 1) and T test results
Big4uk
Big4uk
NonBig4uk
+0.188*
NonBig4fr
NonBig4fr
-0.158
+0.346***
AtleastaBig4fr
+0.237**
+0.050
+39.6***
* significant at 10%; ** significant at 5%; *** significant at 1%
Table 7 Panel C
Differences in coefficients (model 2) and T test results
NonBig4uk
+0.203*
Big4uk
Big4uk
NonBig4fr
Nonbig4fr
-0.158
+0.361***
OneBig4fr
+0.205*
+0.002
+0.363***
TwoBig4fr
+0.417***
+0.214***
+0.575***
OneBig4fr
+0.212**
* significant at 10%; ** significant at 5%; *** significant at 1%
39