The Effects of Financial Restatements on Audit Fees of Non-Restating Office-Level Clients

Posted: 15 Sep 2011

See all articles by Hiu Lam Choy

Hiu Lam Choy

Drexel University

Ferdinand A. Gul

Monash University Sunway Campus

Date Written: September 14, 2011

Abstract

This study draws on both audit quality and trust theories to examine the effects of financial restatements on the auditor-client trust relationship, as evidenced by changes in audit fees of the auditor’s other non-restating office-level clients in the year following the restatement announcement. We find that trustor firms (i.e., non-restating firms with the same auditor [trustee] as restatement firms) pay significantly lower audit fees to the auditors especially when the auditors are one of the Big N firms. We also find a smaller drop in audit fees for firms in which the auditors’ tenure with the client is longer, consistent with the concept of benevolence in trust theory.

Keywords: Restatements, Audit quality, Audit fees, Trust theory, Tenure

Suggested Citation

Choy, Hiu Lam and Gul, Ferdinand A., The Effects of Financial Restatements on Audit Fees of Non-Restating Office-Level Clients (September 14, 2011). Available at SSRN: https://ssrn.com/abstract=1927501

Hiu Lam Choy (Contact Author)

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

Ferdinand A. Gul

Monash University Sunway Campus ( email )

Jalan Lagoon Selatan
Selangor Darul Ehsan
Bandar Sunway, 46150
Malaysia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,507
PlumX Metrics