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Auditor Fees, Abnormal Fees and Audit Quality Before and After the Sarbanes-Oxley Act

Ariel J. Markelevich

Suffolk University

Rani Hoitash

Bentley University - Department of Accountancy

Charles A. Barragato

Stony Brook University

February 7, 2005

Our study examines fees paid to auditors for audit and non-audit services during the period 2000 to 2003. We document a statistically significant positive association between audit fees and the absolute value of performance-adjusted discretionary accruals over all years. We also identify a significant positive association between non-audit fees and discretionary accruals in years 2000 and 2001, but no such association in later years (after passage of the Sarbanes-Oxley Act). This lack of association in 2002 and 2003 may be a result of legislation that limits the types of non-auditing services that auditors can provide to audit clients. To address the potential impact of fee composition and client importance on auditor independence, we extend our empirical analysis by incorporating predictions of abnormal audit and non-audit fees. We derive abnormal fees using a fee estimation model drawn from prior literature. We find evidence consistent with the view that clients with higher abnormal fees are more apt to exert influence on their auditors, which in turn may lead to a breach in auditor independence. Overall, our results are most consistent with economic bonding being the primary determinant of auditor behavior.

Number of Pages in PDF File: 36

Keywords: Audit fees, non-audit fees, discretionary accruals, independence

JEL Classification: M4

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Date posted: January 11, 2005  

Suggested Citation

Markelevich, Ariel J. and Hoitash, Rani and Barragato, Charles A., Auditor Fees, Abnormal Fees and Audit Quality Before and After the Sarbanes-Oxley Act (February 7, 2005). Available at SSRN: http://ssrn.com/abstract=646681 or http://dx.doi.org/10.2139/ssrn.646681

Contact Information

Ariel J. Markelevich (Contact Author)
Suffolk University ( email )
Sawyer Business School
120 Tremont Street
Boston, MA 02108
United States
617-305-2713 (Phone)
Rani Hoitash
Bentley University - Department of Accountancy ( email )
175 Forest Street
Waltham, MA 02452-4705
United States
Charles A. Barragato
Stony Brook University ( email )
303 Harriman Hall
Stony Brook, NY 11794
United States
631-632-7999 (Phone)
631-632-9412 (Fax)
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