The Effect of the Enron-Andersen Affair on Audit Pricing

29 Pages Posted: 16 Nov 2004

See all articles by Wuchun Chi

Wuchun Chi

National Chengchi University (NCCU) - Department of Accounting

Date Written: November 2004


This study examines whether and how the Enron-Andersen affair affected audit fees by investigating the sample before (years 2000 and 2001) and after (years 2002 and 2003) the occurrence of this prominent event in the U.S. audit market. The results show that, on average, audit fees have not only increased but that the fee premiums of the remaining Big 4 audit firms are also higher post-Enron. The fee-cutting phenomenon in an initial engagement is still applicable for former Andersen clients, who had to switch to a new auditor in the year 2002. However, among the clients of Big 4 auditors, the degree of fee-cutting is statistically greater for former Andersen's clients as compared to those for non-former Andersen's clients, ceteris paribus. The changed structure of audit pricing is not just a one shot reaction by the audit industry after the first year of the affair, but has lasted to the second year. Finally, post-Enron, I find evidence of higher fees for Big 4 industry specialists relative to non-specialist auditors, but this result only applies when the client is a small company.

Keywords: audit fees, auditor specialization, brand name, Enron-Andersen affair, fee-cutting

JEL Classification: M41

Suggested Citation

Chi, Wuchun, The Effect of the Enron-Andersen Affair on Audit Pricing (November 2004). , . Available at SSRN: or

Wuchun Chi (Contact Author)

National Chengchi University (NCCU) - Department of Accounting ( email )

No. 64, Sec 2
Chih-Nan Road
Wenshan 116, Taipei
886-2-29393091-81031 (Phone)
886-2-29387113 (Fax)


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