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http://ssrn.com/abstract=2184413
 
 

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Pork Bellies and Public Company Audits: Have Audits Once Again Become Just Another Commodity?


Brant E. Christensen


Texas A&M University - Department of Accounting

Thomas C. Omer


University of Nebraska at Lincoln - School of Accountancy

Nathan Y. Sharp


Texas A&M University - Department of Accounting

Marjorie K. Shelley


University of Nebraska at Lincoln - School of Accountancy

September 5, 2014


Abstract:     
Prior research has established that from 2000 to 2007, auditors incorporated clients’ financial reporting risk in their pricing of audit engagements (Charles et al. 2010; Doogar et al. 2010, 2013). However, regulators have expressed concern that the economic downturn and pressure from clients to reduce audit fees has had a negative impact on auditor effort. Our evidence suggests a marked decline in the pricing of financial reporting risk during the 2006-2010 period, further suggesting a reduced focus on the risk of misreporting during that period. This decline is particularly evident among non-industry expert auditors. Connecting these findings to audit quality, we observe a higher likelihood of subsequent accounting restatements among clients whose financial reporting risk appears to be insufficiently incorporated in audit fees, particularly among clients of small audit firm offices. Our results are consistent with a return to the commoditization of financial statement audits and its negative impact on audit quality.

Number of Pages in PDF File: 45

Keywords: Audit fees, financial reporting risk, fee pressure, economic downturn, auditor expertise

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Date posted: December 4, 2012 ; Last revised: September 9, 2014

Suggested Citation

Christensen, Brant E. and Omer, Thomas C. and Sharp, Nathan Y. and Shelley, Marjorie K., Pork Bellies and Public Company Audits: Have Audits Once Again Become Just Another Commodity? (September 5, 2014). Available at SSRN: http://ssrn.com/abstract=2184413 or http://dx.doi.org/10.2139/ssrn.2184413

Contact Information

Brant E. Christensen (Contact Author)
Texas A&M University (TAMU) - Department of Accounting ( email )
430 Wehner
College Station, TX 77843-4353
United States
979-845-0542 (Phone)

Thomas C. Omer
University of Nebraska at Lincoln - School of Accountancy ( email )
307 College of Business Administration
Lincoln, NE 68588-0488
United States
Nathan Y. Sharp
Texas A&M University (TAMU) - Department of Accounting ( email )
430 Wehner
College Station, TX 77843-4353
United States
979-845-0338 (Phone)

Marjorie Shelley
University of Nebraska at Lincoln - School of Accountancy ( email )
307 College of Business Administration
Lincoln, NE 68588-0488
United States
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References:  63
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