“Problem” Directors and Audit Fees

19 Pages Posted: 20 Feb 2019

See all articles by Ahsan Habib

Ahsan Habib

Massey University - School of Accountancy; Massey University

Md. Borhan Uddin Bhuiyan

Massey University - School of Accountancy

Asheq Rahman

Auckland University of Technology - Faculty of Business & Law

Date Written: March 2019

Abstract

This study investigates the association between audit fees and the presence of “problem” directors on corporate boards and audit committees. “Problem” directors, in this context, are those directors who have been involved in corporate financial failures and integrity indiscretions in the past. Auditors regard the presence of such directors on boards and audit committees as audit risk, and may have to enhance their audit procedures, leading to higher audit fees. Using a sample of 9,175 firm‐year observations from 2004 to 2010 of US firms, we find that the presence of “problem” directors on boards and audit committees is associated with higher audit fees. This finding has a policy implication for corporate managers, that they should be mindful of the increase in perceived audit risk that arises from professional and personal attributes of directors when recruiting individuals to serve on their boards.

Keywords: “problem” directors, audit committee, audit fees, audit risk, corporate governance, fraud

Suggested Citation

Habib, Ahsan and Bhuiyan, Md. Borhan Uddin and Rahman, Asheq, “Problem” Directors and Audit Fees (March 2019). International Journal of Auditing, Vol. 23, Issue 1, pp. 125-143, 2019. Available at SSRN: https://ssrn.com/abstract=3335323 or http://dx.doi.org/10.1111/ijau.12150

Ahsan Habib (Contact Author)

Massey University - School of Accountancy ( email )

Auckland
New Zealand

Massey University ( email )

Auckland
New Zealand

Md. Borhan Uddin Bhuiyan

Massey University - School of Accountancy ( email )

Palmerston North
New Zealand
+6494140800 (Phone)

Asheq Rahman

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

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