How audit fees are affected by a client under SEC investigation
Source of Publication
International Journal of Accounting, Auditing and Performance Evaluation
We examine the effect of a US Securities and Exchange Commission (SEC) investigation of the audit client on audit cost. Ordinary least-squares models along with a match-paired design and publicly available auditor fees data are used to analyse the relation between an SEC investigation event and audit fees. The finding of a positive and significant relation supports our hypothesis that the business risk of a client under investigation by this regulatory agency is perceived to be higher than that of a client not under investigation. This finding is important given that certain factors may work against observing an effect. This study contributes to the literature by determining that auditors charge a statistically and economically significant average audit fees premium that ranges from 49.9% to 56.2% to clients under SEC investigation. One implication is that client management has fee-related incentives to avoid regulatory misconduct/scrutiny and produce financial statements free of material misstatement. © 2014 Inderscience Enterprises Ltd.
Audit fees, Audit risk, Business risk, Cost consequence, Engagement risk, Monitoring costs, Regulatory agency, SEC investigation
Scott, Winifred D. and Gist, Willie E., "How audit fees are affected by a client under SEC investigation" (2014). All Works. 1867.
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