Abnormal Audit Fees and Audit Quality: Evidence from the Korean Audit Market

Behrend, M., S. Khan, Y-W. Ko and S-J. Park. 2020. Abnormal Audit Fees and Audit Quality: Evidence from the Korean Audit Market. Journal of International Accounting Research. 19(3): 37-60.

Posted: 5 Jan 2022

See all articles by Matthew Behrend

Matthew Behrend

St. Edward’s University

Sarfraz Khan

University of Louisiana at Lafayette

Young Woo Ko

Kyonggi University

Sung-Jin Park

Indiana University South Bend

Date Written: April 1, 2020

Abstract

Do abnormally high or low audit fees reflect audit quality? In this paper, we re-examine this issue after controlling for the confounding effect of audit hours by using a sample of public firms in the Korean audit market, which publicly discloses both audit fees and audit hour information. While we do not find a significant association between abnormally high audit fees and audit quality, we find that abnormally low audit fees are associated with larger discretionary accruals and a higher likelihood of meeting or beating analyst earnings forecasts. Further, we find that the relationship between abnormally low audit fees and audit quality indicators persists regardless of the level of audit hours. To the extent that audit hours represent audit effort, these findings suggest that greater audit effort alone may not lead to higher audit quality as fee pressure from abnormally low fees may discourage the provision of high-quality audit services.

Keywords: abnormal audit fees; audit effort; audit quality; audit hours

JEL Classification: M42; M48

Suggested Citation

Behrend, Matthew and Khan, Sarfraz and Ko, Young Woo and Park, Sung-Jin, Abnormal Audit Fees and Audit Quality: Evidence from the Korean Audit Market (April 1, 2020). Behrend, M., S. Khan, Y-W. Ko and S-J. Park. 2020. Abnormal Audit Fees and Audit Quality: Evidence from the Korean Audit Market. Journal of International Accounting Research. 19(3): 37-60., Available at SSRN: https://ssrn.com/abstract=3948949

Matthew Behrend

St. Edward’s University ( email )

Sarfraz Khan

University of Louisiana at Lafayette ( email )

Department of Accounting
214 Hebrard Blvd.
Lafayette, LA 70508
United States

Young Woo Ko

Kyonggi University ( email )

154-42 Gwanggyosan-ro, Iui-dong, Yeongtong-gu
Kyonggi-Do, Suwon 442-760
Korea, Republic of (South Korea)

Sung-Jin Park (Contact Author)

Indiana University South Bend ( email )

South Bend, IN 46634
United States

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

Paper statistics

Abstract Views
81
PlumX Metrics