Do Abnormally High Audit Fees Impair Audit Quality?

40 Pages Posted: 15 Dec 2009

See all articles by Jong-Hag Choi

Jong-Hag Choi

Seoul National University - College of Business Administration

Jeong-Bon Kim

City University of Hong Kong

Yoonseok Zang

Singapore Management University - School of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: December 4, 2009

Abstract

This study examines whether and how audit quality proxied by the magnitude of absolute discretionary accruals is associated with abnormal audit fees, that is, the difference between actual audit fee and the expected, normal level of audit fee. The results of various regressions reveal that the association between the two is asymmetric, depending on the sign of the abnormal audit fee. For observations with negative abnormal audit fees, there is no significant association between audit quality and abnormal audit fee. In contrast, abnormal audit fees are negatively associated with audit quality for observations with positive abnormal audit fees. Our findings suggest that auditors’ incentives to deter biased financial reporting differ systematically, depending on whether their clients pay more than or less than the normal level of audit fee. Our results are robust to a variety of sensitivity checks.

Keywords: Audit quality, abnormal audit fees, earnings management

Suggested Citation

Choi, Jong and Kim, Jeong-Bon and Zang, Yoonseok, Do Abnormally High Audit Fees Impair Audit Quality? (December 4, 2009). Available at SSRN: https://ssrn.com/abstract=1521324 or http://dx.doi.org/10.2139/ssrn.1521324

Jong Choi

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Jeong-Bon Kim (Contact Author)

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Yoonseok Zang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

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