Do Abnormally High Audit Fees Impair Audit Quality

By Jong-Hag Choi, Jeong‐Bon Kim, Yoonseok Zang. 2010

354 citations recorded by the source corpus.

SUMMARY: This study examines whether and how audit quality proxied by the magnitude of absolute discretionary accruals is associated with abnormal audit fees, that is, the difference between actual audit fee and the expected, normal level of audit fee. The results of various regressions reveal that the association between the two is asymmetric, depending on the sign of the abnormal audit fee. For observations with negative abnormal audit fees, there is no significant association between audit quality and abnormal audit fee. In contrast, abnormal audit fees are negatively associated with audit quality for observations with positive abnormal audit fees. Our findings suggest that auditors’ incentives to deter biased financial reporting differ systematically, depending on whether their clients pay more than or less than the normal level of audit fee. Our results are robust to a variety of sensitivity checks.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/e4b4a521efc79692656db264e4beed413590f1e2

How researchers see this paper

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In Accounting

1. Kathleen A. Bentley
2. Thomas C. Omer
3. Nathan Y. Sharp
4. Xing-qiang Du

In Strategy and Management

1. Thomas C. Omer
2. Kathleen A. Bentley
3. Nathan Y. Sharp

Citations in the corpus

• Business Strategy, Financial Reporting Irregularities, and Audit Effort (2013, methodology): “…audit client, and low auditor industry expertise.24 We measure low audit effort by constructing an indicator variable equal to one if abnormal audit fees are negative (i.e., where expected fees exceed actual fees), following Choi, Kim, and Zang 2009 in the construction of the abnormal fee measure.”