The Relation between Managerial Ability and Audit Fees and Going Concern Opinions

Posted: 19 Nov 2014

See all articles by Gopal V. Krishnan

Gopal V. Krishnan

Bentley University

Changjiang (John) Wang

University of Cincinnati - Department of Accounting

Date Written: November 17, 2014

Abstract

While prior research has examined the relation between firm-level attributes and auditors’ decisions, there is little empirical evidence on whether managerial attributes are informative to auditors. We examine the relation between managerial ability, i.e., ability in transforming corporate resources to revenues, and audit fees and going concern opinion. We use the managerial ability measure recently developed by Demerjian, Lev, and McVay (2012). We find that incremental to firm-level attributes, both audit fees and the likelihood of issuing a going concern opinion are decreasing in managerial ability. Collectively, our findings support the notion that the managerial ability is relevant to auditors’ decisions.

Keywords: Managerial ability; Audit fees; Engagement risk; Going concern

JEL Classification: M41; J44

Suggested Citation

Krishnan, Gopal and Wang, Changjiang (John), The Relation between Managerial Ability and Audit Fees and Going Concern Opinions (November 17, 2014). Auditing: A Journal of Practice & Theory, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2526616

Gopal Krishnan

Bentley University ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2477 (Phone)

Changjiang (John) Wang (Contact Author)

University of Cincinnati - Department of Accounting ( email )

Cincinnati, OH 45221-0211
United States

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