Determinants of Low-Balling of Audit Fees and Subsequent Recovery

Posted: 15 Sep 2016

See all articles by Myojung Cho

Myojung Cho

Pace University

Soo Young Kwon

Korea University

Gopal V. Krishnan

Bentley University

Date Written: September 12, 2016

Abstract

Auditors’ low-balling in initial engagements is a longstanding concern for regulators and others. We examine the determinants and consequences of low-balling using more recent data. We provide evidence that auditors are likely to low-ball if they are “Big N” auditors, expect future revenues from non-audit services, or are quoting large, profitable, and important clients. Further, low-balling auditors tend to recoup their initial fee discounts in subsequent periods via increases in audit and non-audit fees. We also find that clients of low-balling auditors are more likely to restate in the subsequent period. Our findings suggest that low-balling is associated with greater future economic dependence on the client and have implications for auditor independence and audit quality.

Suggested Citation

Cho, Myojung and Kwon, Soo Young and Krishnan, Gopal, Determinants of Low-Balling of Audit Fees and Subsequent Recovery (September 12, 2016). Pace University Accounting Research Paper No. 2016/14. Available at SSRN: https://ssrn.com/abstract=2838908

Myojung Cho

Pace University ( email )

1 Pace Plaza
New York, NY 10038-1502
United States

Soo Young Kwon (Contact Author)

Korea University ( email )

#613 LG-POSCO Hall
145 Anamro, Seongbuk-Gu
Seoul, 136-701
Korea, Republic of (South Korea)
82232901937 (Phone)

Gopal Krishnan

Bentley University ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2477 (Phone)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
846
PlumX Metrics