Bank Audit Fees and Asset Securitization Risks

Posted: 21 Aug 2011 Last revised: 31 Mar 2017

See all articles by Grant Cullen

Grant Cullen

Murdoch University

Dominic Gasbarro

Murdoch University

Gary S. Monroe

University of New South Wales (UNSW) - Australian School of Business

Greg Shailer

ANU College of Business and Economics

Yuyu Zhang

Queensland University of Technology - School of Accountancy

Date Written: March 28, 2017

Abstract

SUMMARY: We examine whether bank auditor effort, proxied by audit fees, is related to asset securitization risks (ASR) and whether the incremental auditor effort attributed to ASR is related to audit quality. Our sample period encompasses the Global Financial Crisis (GFC) and the introduction of FAS No. 166 and FAS No. 167, which were intended to constrain accounting for asset securitizations as sales. Using U.S. bank holding company (BHC) data from 2003 to 2013, we find significantly positive associations between ASR and audit fees for Big N auditors but not for non-Big N auditors. Pre-GFC audit fees have a positive association with ASR, and are more significant for BHCs reporting a loss. After the implementation of FAS Nos. 166 and 167, this positive association persists, mainly driven by BHCs reporting a loss. With respect to the incremental auditor effort attributed to ASR, we find that, prior to the GFC, the incremental audit effort by Big N auditors, but not by non-Big N auditors, reduced the likelihood of subsequent restatements and constrained reported gains on securitizations.

Keywords: Keywords: audit fees; asset securitization risks; bank holding companies; financial crisis; restatements; securitization gains

JEL Classification: G14, G21, M42

Suggested Citation

Cullen, Grant Stewart and Gasbarro, Dominic and Monroe, Gary S. and Shailer, Greg and Zhang, Yuyu, Bank Audit Fees and Asset Securitization Risks (March 28, 2017). Auditing: A Journal of Practice & Theory, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1911700 or http://dx.doi.org/10.2139/ssrn.1911700

Grant Stewart Cullen

Murdoch University ( email )

Murdoch, WA 6150
Australia
618 9360 6026 (Phone)
618 9310 5004 (Fax)

Dominic Gasbarro

Murdoch University ( email )

South Street
Murdoch 6150, Western Australia
Australia

Gary S. Monroe (Contact Author)

University of New South Wales (UNSW) - Australian School of Business ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
+61293856443 (Phone)

Greg Shailer

ANU College of Business and Economics ( email )

Research School of Accounting
Hanna Neumann Building 21
Canberra, Australian Capital Territory 2601
Australia

Yuyu Zhang

Queensland University of Technology - School of Accountancy ( email )

2 George Street
Brisbane, Queensland 4000
Australia

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