Issues in Examining the Effect of Auditor Litigation on Audit Fees
22 Pages Posted: 12 Jan 2014
Date Written: January 12, 2014
A large body of research has studied audit fees aiming to determine whether they reflect auditors’ response to clients’ risks, auditors’ expertise, competitive pressures in the audit market, and independence issues between auditors and clients. Badertscher, Jorgensen, Katz, and Kinney  study the effect of auditor litigation risk on audit fees. Litigation risk is expected to be a strong incentive for auditors to deliver high quality audits and an important determinant of audit fees. Nevertheless, determining the impact of litigation risk is complicated because although there is considerable variation in audit fees, there are scarce opportunities to examine variation in litigation risk. This paper provides a brief summary of extant studies examining the effect of auditor litigation on audit fees, and discusses research design issues and future research opportunities in this area.
Keywords: Auditor litigation, audit fees, matching
JEL Classification: M41, M42, M44
Suggested Citation: Suggested Citation