Board Characteristics and Audit Fees

Posted: 19 Jun 2002

See all articles by Joseph V. Carcello

Joseph V. Carcello

University of Tennessee

Dana R. Hermanson

Kennesaw State University - Department of Accounting

Terry L. Neal

University of Tennessee

Richard A. Riley

West Virginia University - Department of Accounting and Management Information Systems

Multiple version iconThere are 2 versions of this paper

Date Written: Undated

Abstract

This paper examines the relations between three board characteristics (independence, diligence, and expertise) and Big 6 audit fees for Fortune 1000 companies. To protect its reputation capital, avoid legal liability, and promote shareholder interests, a more independent, diligent, and expert board may demand differentially higher audit quality (greater assurance which requires more audit work) than the Big 6 audit firm normally would provide. The audit fee would increase as the auditor's additional costs are passed on to the client, such that we would expect positive relations between audit fees and the board characteristics examined.

We find significant positive relations between audit fees and board independence, diligence, and expertise. The results persist when similar measures of audit committee "quality" are included in the model. The results add to the growing body of literature documenting relations between corporate governance mechanisms and various facets of the financial reporting and audit processes, as well as to our understanding of the determinants of audit fees.

Keywords: audit fees, board characteristics, independence, expertise

JEL Classification: M49, G34

Suggested Citation

Carcello, Joseph V. and Hermanson, Dana R. and Neal, Terry L. and Riley, Richard A., Board Characteristics and Audit Fees (Undated). Available at SSRN: https://ssrn.com/abstract=312139

Joseph V. Carcello (Contact Author)

University of Tennessee ( email )

Department of Accounting & Information Management
629 Stokely Management Center
Knoxville, TN 37996-0560
United States
865-974-1757 (Phone)
865-974-4631 (Fax)

Dana R. Hermanson

Kennesaw State University - Department of Accounting ( email )

1000 Chastain Road
Kennesaw, GA 30144
United States
770-423-6077 (Phone)
770-499-3420 (Fax)

Terry L. Neal

University of Tennessee ( email )

639 Stokely Management Center
Knoxville, TN 37996-0560
United States
865-974-2664 (Phone)
865-974-4631 (Fax)

Richard A. Riley

West Virginia University - Department of Accounting and Management Information Systems ( email )

Morgantown, WV 26506
United States
304-293-7849 (Phone)
304-293-0635 (Fax)

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