Abnormal Audit Fees and Restatements

ABSTRACT

We investigate the relationship between audit fees and subsequent financial statement restatements in the years following the Sarbanes-Oxley Act of 2002 (SOX). After controlling for internal control quality, we find that abnormal audit fees are negatively associated with the likelihood that financial statements are subsequently restated. This result conflicts with prior work that finds that audit fees are positively associated with future restatements. Overall, our evidence is consistent with the notion that restatements reflect low audit effort or underestimated audit risk in the periods leading up to the restatement year.

Keywords:  restatements, audit fees, audit quality.

Alan I. Blankley is an Associate Professor at the University of North Carolina; David N. Hurtt is an Associate Professor, and Jason E. MacGregor is an Assistant Professor, both at Baylor University.

Source : Alan I. Blankley, David N. Hurtt, and Jason E. MacGregor (2012) Abnormal Audit Fees and Restatements. AUDITING: A Journal of Practice & Theory: February 2012, Vol. 31, No. 1, pp. 79-96.