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

See all articles by Jeff Zeyun Chen

Jeff Zeyun Chen

Texas Christian University

Karen K. Nelson

Texas Christian University - Department of Accounting

Yanyan Wang

Xiamen University

Lisheng Yu

Sun Yat-sen University (SYSU) - School of Business

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

Chen, Jeff Zeyun and Nelson, Karen K. and Wang, Yanyan and Yu, Lisheng, What Does the Auditor Say? Auditors’ Disclosures of Critical Audit Matters and Audit Fees (September 30, 2023). Accounting Horizons, forthcoming, Available at SSRN: https://ssrn.com/abstract=3638540 or http://dx.doi.org/10.2139/ssrn.3638540

Jeff Zeyun Chen (Contact Author)

Texas Christian University ( email )

2900 Lubbock Ave
Fort Worth, TX 76109
United States

Karen K. Nelson

Texas Christian University - Department of Accounting ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States
817-257-7567 (Phone)

Yanyan Wang

Xiamen University ( email )

Xiamen, Fujian 361005
China

Lisheng Yu

Sun Yat-sen University (SYSU) - School of Business ( email )

No. 66 Gongchang Road, Guangming District
Shenzhen, 518107
China

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