What Does the Auditor Say? Auditors’ Disclosures of Critical Audit Matters and Audit Fees
Accounting Horizons, forthcoming
39 Pages Posted: 22 Jul 2020 Last revised: 27 Nov 2023
Date Written: September 30, 2023
Abstract
We examine whether critical audit matter disclosures contain information about material misstatement risks that is priced in audit fees. We find that textual features of auditors’ risk descriptions and the types of risks identified capture fee-relevant information. Further, the results are incremental to other determinants of audit fees considered in prior research and to managements’ disclosures in the related notes to the financial statements. Overall, we provide evidence that auditors’ perceptions of audit risks revealed in the newly-expanded audit opinion capture information relevant for understanding audit pricing decisions.
Keywords: Audit opinion; audit fees; critical audit matters; audit risk.
JEL Classification: M42
Suggested Citation: Suggested Citation