Abnormal Audit Fee and Audit Quality

This study tests the hypotheses that below-normal audit fees signal important nuances in the balance of bargaining power between the auditor and the client, and that such power may ultimately influence audit quality. We find that audit quality, proxied by absolute discretionary accruals and meeting...

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Bibliographic Details
Published inAuditing : a journal of practice and theory Vol. 31; no. 3; pp. 1 - 22
Main Authors Asthana, Sharad C., Boone, Jeff P.
Format Journal Article
LanguageEnglish
Published Sarasota Assoc 01.08.2012
American Accounting Association
Subjects
Accounting firms
Audit fees
Audit quality
Audited financial statements
Auditing
Audits
Bargaining
Bilanzpolitik
Costs
Dienstleistungsqualität
Fees & charges
Fines & penalties
Honorar
Hypotheses
Internes Kontrollsystem
Power
Profitability
Profits
Public Company Accounting Reform & Investor Protection Act 2002-US
Quality
Studies
Verhandlungsmacht
Wirtschaftsprüfung
United States > US
Online AccessGet full text
ISSN0278-0380
1558-7991
DOI10.2308/ajpt-10294

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Summary:This study tests the hypotheses that below-normal audit fees signal important nuances in the balance of bargaining power between the auditor and the client, and that such power may ultimately influence audit quality. We find that audit quality, proxied by absolute discretionary accruals and meeting or beating analysts' earnings forecasts, declines as negative abnormal audit fees increase in magnitude, with the effect amplified as proxies for client bargaining power increase. We find that this effect is dampened in years following the Sarbanes-Oxley Act (SOX), suggesting that SOX was effective in enhancing auditor independence.
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ISSN:0278-0380
1558-7991
DOI:10.2308/ajpt-10294