Audit Fees and Investor Perceptions of Audit Characteristics

ABSTRACT

We investigate how audit fee disclosures affect investor perceptions of audit characteristics. We find evidence that when audit fees are presented to investors with supplementary contextual information indicating that the fees are low, average, or high (as compared to industry averages), investors perceive audit quality and auditor effort as being low, average, or high, respectively. When not provided with any additional information concerning the audit fee (similar to the present state of disclosures), investors assess audit quality and auditor effort as being average. Surprisingly, we find that while investors perceive auditor independence as low, average, and high when fees are presented as high, average, or low, respectively, investors not provided with any relative fee information assess auditor independence as low, similar to the investors who are presented with high relative fees. This latter finding provides important insight regarding investors' current perceptions of auditor independence, particularly in the absence of relative or comparative audit fee information.

Keywords:  audit fees, disclosure, investor perception

Source : Allison K. Beck, Robert M. Fuller, Leah Muriel, and Colin D. Reid (2013) Audit Fees and Investor Perceptions of Audit Characteristics. Behavioral Research in Accounting: Fall, Vol. 25, No. 2, pp. 71-95.