DISCUSSION OF Evidence of Non-Big 6 Market Specialization and Pricing Power in a Niche Assurance Service Market.

The principal objective of this study is to examine whether pension plan administrators, given their incentive to reduce agency costs, pay higher audit fees to market designated audit specialists than to nonspecialists. Despite the ideal agency incentive conditions present in this audit market and the findings of a statistically significant positive relationship between specialization and audit fee, the overall predictability of audit fees in this market appears to be relatively low. It is this latter finding that is the subject of study. The presence of an apparently active and aggressive regulator (sanctions imposed directly against pension plan administrators [management] and numerous referrals of auditors to disciplinary authorities provides evidence of strong agency incentives to supply and demand perceived high-quality specialty audits. Since pension plan administrators are clearly identifiable as being direct beneficiaries of the assurance service and, furthermore, since the practitioner providing the service must have the expertise to deal with audit problems unique to employee benefit plans, the conditions commonly found in a value-based pricing situation are present.