Money laundering and audit fees

We investigate the association between state-level money laundering sentences and audit fees in the US. Money laundering measures a broad category of offenses involving financial transactions using funds or monetary instruments gained through criminal activities and tax evasion. We find that firms headquartered in US states with high rates of money laundering sentences pay more audit fees. Our results suggest that auditors incorporate, as a fee premium, the higher risks involved when clients operate in those states. Our result remains robust to alternative specifications of money laundering proxies, and to the inclusion of a number of firm-level and state-level control variables. We also conduct two-stage least squares and propensity score matching analysis to mitigate the endogeneity problem that might arise from omitted variables, reverse causality, or model misspecification problems.     

Fair value and audit fees

This paper investigates the effect of fair value reporting and its attributes on audit fees. We use as our primary sample the European real estate industry around mandatory IFRS adoption (under which reporting of property fair values becomes compulsory), due to its unique operating and reporting characteristics. We document lower audit fees for firms reporting property assets at fair value relative to those employing depreciated cost—a difference that appears driven, in part, by impairment tests that occur only under depreciated cost. We further find that audit fees are decreasing in firms’ exposure to fair value and increasing both in the complexity of the fair value estimation and for recognition (versus only disclosure) of fair values. We corroborate our findings in two alternative settings: contrasting UK and US real estate firms and using UK investment trusts. Overall, the results suggest that fair values can lead to lower monitoring costs; however, any reductions in audit fees will vary with salient characteristics of the fair value reporting, including the difficulty to measure and the treatment within the financial statements.     

不利意见、审计费用与意见购买

本文进一步区分上年度不利审计意见的具体类型、审计费用的升降以及审计意见的改善与恶化。研究证实:(1)上年度被出具不利审计意见虽然可能增加本年度收到不利审计意见的可能性,但是亦可能提高审计意见改善的可能性,并和审计意见出现恶化的可能性显著负相关。(2)如果上年度被出具不利审计意见,则异常审计费用与审计意见改善的可能性显著正相关。(3)审计费用的增加能显著降低被出具不利审计意见的可能性,并可有效防止年报审计意见出现恶化。可见,公司管理层可以通过提高审计费用成功地实现审计意见购买动机,在一定程度上规避不利审计意见。     

金融危机背景下美国卖空监管法律制度改革述评

金融危机让2007年被取消的提价规则是否应当恢复成为美国卖空监管争议的焦点。该规则自1937年出台到废除在美国整整实行了70年。废除提价规则是证交会经过长期酝酿和论证后做出的改革,在危机根源没有确诊情况下,草率否定不仅破坏了监管政策与规则的连贯性,而且也给监管机构监管声誉造成永久伤害。但迫于公众的呼声和国会的压力,证交会不得不推出新的改革方案。分析美国卖空监管制度的演变与改革,本文有两个结论:一是监管政策稳定与连贯是维护金融稳定和提升监管声誉的必要保障;二是机制的灵活与动态适应能力是确保监管政策稳定与连贯的前提。     

Local creative culture and audit fees

This paper examines the association between local creative culture and audit fees. Using a large, unbalanced panel data of listed US firms between 2004 and 2018, we find evidence that firms headquartered in US counties with high creative culture tend to pay higher audit fees than firms headquartered in counties with low creative culture. We also find that such firms tend to have longer audit report lag and are subject to more shareholder litigation. Cross-sectional tests show that real earnings management, managerial risk-taking propensity, and external corporate governance environment moderate the positive association between creative culture and audit fees. The positive association between local creative culture and audit fees remains robust to controlling for endogeneity concerns. Our study contributes to the emerging literature on local creative culture by providing evidence that local creative culture encourages managers and employees to undertake risky initiatives, thereby increasing audit risks.     

Relation between external audit fees, audit committee characteristics and internal audit

This study examines whether the existence of an audit committee, audit committee characteristics and the use of internal audit are associated with higher external audit fees. Higher audit fees imply increased audit testing and higher audit quality. We find that the existence of an audit committee, more frequent committee meetings and increased use of internal audit are related to higher audit fees. The expertise of audit committee members is associated with higher audit fees when meeting frequency and independence are low. These findings are consistent with an increased demand for higher quality auditing by audit committees, and by firms that make greater use of internal audit.     

Female audit committee members and their influence on audit fees

We test the relationship between female representation on the audit committee and audit fees for 624 Australian companies in the year 2011. A positive relationship is found, leading to the conclusion that female presence on audit committees influences the quality of the external audit. Further, we find that gender is the significant audit committee characteristic in predicting audit quality and that women on the audit committee strengthen the positive relationship between firm size and audit fees, and between risk and audit fees. Conversely, we find that female representation dampens the positive relationship between complexity and audit fees.     

Code of ethics quality and audit fees

Using a sample of U.S. firms from 2003 to 2018, we examine the effect of an audit client’s code of ethics quality on audit fees. We find that clients with a lower code of ethics quality pay significantly higher audit fees, suggesting that auditors perceive such clients as riskier and charge greater risk premiums. We also find that such clients have higher litigation risk and auditors spend greater effort when auditing such clients. Our study is among the first to demonstrate the role of a client’s code of ethics quality in audit pricing. Overall, our findings are consistent with codes of ethics being useful to auditors in assessing managers’ financial representations and providing value to firms.     

Extreme CEO pay cuts and audit fees

This study investigates whether sudden and severe reductions in total CEO compensation affect auditor perceptions of risk. We argue that extreme CEO pay cuts can incentivize the CEO to manipulate the financial reports or make risky operational decisions in a desperate attempt to improve firm performance. This incentive, in turn, is likely to impact auditor assessments of audit risk and auditor business risk, leading to higher audit fees. Consistent with our hypothesis, we find evidence of a positive and highly significant association between extreme CEO pay cuts and audit fees. The results suggest that audit fees are 4.6% higher when there is an extreme CEO pay cut, which corresponds to an audit fee that is $111,458 higher for the average firm-year observation in our sample.     

Perceived auditor independence and audit firm fees

Regulations requiring the disclosure of fees paid to an auditor for audit and non-audit services (NAS) respond to concerns that such payments are potentially detrimental to auditors' actual or perceived independence. Although empirical studies have failed to produce unequivocal evidence of detrimental effects on auditor independence, the actions of regulators, audit firms and companies are consistent with the belief that economic bonding generated by fees can impair perceived levels of auditor independence.

Using a sample of UK companies over a six year period to March 2006, we study perceived impairment of auditor independence by examining the relationship between levels of total relative fees (combined audit and NAS fees payable by a company to its auditor as a proportion of the audit firm's UK income) and market value. This paper's methodological innovation is its use of a valuation framework in this setting. A further contribution lies in dropping the assumption of linearity found in most prior empirical studies. We provide evidence that shareholders perceive a threat to auditor independence only at high total relative fee levels. At lower levels, total relative fees are positively related to company value. These results suggest that disclosure of NAS and audit fees are of relevance to investors, as is information about auditor income. Our results support the view that regulation by reference to the threshold at which total relative fees are perceived negatively is more consistent with investor preferences than prohibition of the supply of NAS by auditors to their audit clients.     

Independent audit committee members’ board tenure and audit fees

An independent audit committee is an audit committee on which all members are independent directors. This study examines whether independent audit committee members’ board tenure affects audit fees. On the basis of the prior literature, we formulate an unsigned hypothesis. This is because on the one hand, long board tenure audit committee members (defined as members with board tenure of 10 or more years) have greater incentives to protect their reputational capitals by purchasing increased audit effort, which positively affects audit fees. On the other hand, audit pricing reflects audit committee quality. Long board tenure audit committee members may have less need for increased audit effort because they can effectively oversee the financial reporting process themselves, which negatively affects audit fees. We find that audit fees are negatively associated with the proportion of long board tenure directors on the independent audit committee, consistent with the notion that audit committee members’ long board tenure results in lower audit effort.     

Determinants of audit fees in Bangladesh

This paper reports the results of an analysis of the determinants of audit fees of both financial and non-financial companies in Bangladesh. The Bangladeshi audit services market is unusual in that there is no direct involvement of international audit firms in it. The results of the regressions show that the size of the auditee has the greatest influence on audit fees. Whilst there was no international Big Six grouping, it was possible to construct a group of Bangladeshi audit firms which commanded a price premium, based on their size and whether they had a link with an international firm of auditors. Financial services companies were found to have higher audit fees relative to non-financial companies. Subsidiaries of multi-national holding companies also had higher audit fees. The surprising result was that auditees which employed at least one qualified accountant had higher audit fees.     

The joint determination of audit fees, non-audit fees, and abnormal accruals

Prior research has estimated piece-meal the determinants of audit fees, non-audit fees and abnormal accruals. Intuition, informal analysis, and a variety of theories suggest that audit fees, non-audit fees, and abnormal accruals are jointly determined. We address this endogeneity issue by modeling the confluence of audit fees, fees for non-audit services and abnormal accruals in a system of simultaneous equations. Our joint estimation provides a starting point to look simultaneously at several competing theories. Using audit and non-audit fee data from the UK for 1994–2000, we find evidence consistent with knowledge spillovers (or economies of scope) from auditing to non-audit services and from non-audit services to auditing. While knowledge spillovers from non-audit services to auditing have been found in prior research [e.g. see Simunic, 1984], the presence of knowledge spillovers from auditing to non-audit services is a new result. Contrary to recent results in Ferguson et al. (2000) and Frankel et al. (2002), we do not find support for the assertion that fees for non-audit services increase abnormal accruals. In fact, contrary to the results in Ashbaugh et al. (2003) and Chung and Kallapur (2003), we find that non-audit fees decrease abnormal accruals, which we attribute to the productive effects of non-audit services. We also find evidence that audit fees increase abnormal accruals, consistent with behavioral theories of unconscious influence or bias in the auditor-client relation. The findings are robust to tests with US data. JEL Classification C30 · M40 · M41 · M49     

Workforce environment and audit fees: International evidence

Using a dataset from 30 countries over the period from 2002 to 2017, we examine the effects of auditing clients’ workforce environment on audit fees as well as the role that national labor market flexibility plays in this relationship. We find evidence that audit fees are significantly lower for firms with a good workforce environment, suggesting that auditors perceive such clients as less risky; as a result, auditors expend less effort and/or charge a lower risk premium. Furthermore, we find this effect to be stronger for firms in countries with a more flexible labor market. Our mediation test results indicate that the relationship between the audit client workforce environment and audit fees is mediated by media coverage of workforce controversies. Our study contributes to the international audit fee literature by identifying employee welfare as a distinct audit pricing factor, above and beyond the effects of overall corporate social responsibility practices.     

美国注册会计师审计收费研究

一、美国注册会计师审计收费研究的基本背景 二十世纪七十年代末、八十年代初,美国经济陷入"滞胀",表现之一就是企业的景况不佳,因此,企业希望聘请收费较低的会计公司,以求节省审计费用,一些企业还以广告的形式对此意向进行公开宣传.与此同时,美国会计公司之间的竞争也加剧,一些会计公司采用了不正当的手段(包括低价竞争)招揽审计业务.     

The association between audit committees,compensation incentives,and corporate audit fees

This study uses audit fee data from the 2001–2003 reporting periods to examine the relationship between measures of audit committee effectiveness and compensation incentives with corporate audit fees. Our results suggest that audit committee size, committee member expertise, and committee member independence are positively associated to audit fee levels, consistent with the notion that audit committees serve as a complement to external auditors in monitoring management. In contrast, CEO long-term pay and insider ownership are inversely related to audit fee levels, substituting for external audit effort in motivating management. Notwithstanding results on the full sample of firm-years, we uncover significant differences in the determinants of audit fees between the years examined. An important implication of these results is that explaining the intra-firm variation in audit fees over time is clearly necessary in order to understand the antecedents and consequences of audit fees.

Auditor specialization, perceived audit quality, and audit fees in the local government audit market

Prior governmental research implies a positive relation between auditor specialization and audit quality, but the effect of specialization on audit fees is mixed. However, no single governmental study investigates the effect of auditor specialization on both audit quality and audit fees. Also, prior studies focus on either large- or small audit firms and often employ indirect proxies for audit quality. We study the effects of auditor specialization on perceived audit quality and audit fees. Our data represent both Big 5 and smaller audit firms and include three market-based measures of specialization. We survey 241 Florida local government finance directors and find that specialization is positively associated with perceived audit quality but not with audit fees. We also find that Big 5 auditors, often used as a proxy for higher audit quality in prior research, are not uniformly associated with increased perceived audit quality but consistently charge higher audit fees. Our results confirm a relation between measures of audit firm specialization and audit quality and raise questions regarding audit firm size and audit quality in the municipal sector. Our findings suggest that engaging specialized auditors may be good policy for many local governments.     

The impact of audit committee quality on financial reporting quality and audit fees

This study examines the association between the quality of audit committees on financial reporting quality and external audit fees in an environment where the formation of audit committees was unregulated. The study uses a sample of 87 New Zealand firms in 2001 when no regulations or listing rules existed for audit committees. The results show no significant association between the quality of an audit committee and the quality of financial reporting. These results are robust to alternative measures of earnings quality. Similarly, the quality of audit committees has little impact on the level of fees paid to external auditors. The results suggest that the benefits of ‘best practice’ audit committees may be less than anticipated by regulators and policymakers.     

Income smoothing by Dutch hospitals

Research indicates that hospitals manage their earnings. However, these findings might be influenced by methodological issues. In this study, I exploit specific features of Dutch hospitals to study income smoothing while limiting these methodological issues. The managers of Dutch hospitals have the opportunity not only to postpone revenues to future periods but also to choose the moment of recognition of the postponed revenue. These postponements and recognitions can be positive as well as negative and have to be disclosed in hospitals’ financial statements. I show that the patterns found with respect to postponing revenue and the recognition of postponed revenue are consistent with the expectation that hospitals attempt to smooth their income.     

Managerial overconfidence,ability, firm-governance and audit fees

Review of Quantitative Finance and Accounting - Prior studies document that managerial overconfidence potentially increases the risk of financial misstatements, and that overconfident managers...