Engagement Planning, Bid Pricing, and Client Response in the Market for Initial Attest Engagements

This study examines how client risk factors and the provision of additional services affect engagement planning and bid pricing for a set of initial engagement proposals that a single firm submitted to its prospective clients in 1997-1998. The paper finds little effect of risk on planned personnel hours, but shows that the firm responds to fraud and error risk factors by applying engagement-planning strategies. The paper finds risk premia for both fraud and error risk factors. It also finds that for clients purchasing additional services, the firm plans more hours and uses industry experts more often