Do Auditors Price Breach Risk in Their Audit Fees?

2018 ◽  
Vol 33 (2) ◽  
pp. 177-204 ◽  
Author(s):  
Thomas J. (Tom) Smith ◽  
Julia L. Higgs ◽  
Robert E. Pinsker
Keyword(s):  
Audit Fees ◽  
Audit Committees ◽  
Governance Mechanism ◽  
Audit Risk ◽  
Internal Governance ◽  
Security Breaches ◽  
Management Protocol ◽  
Audit Fee ◽  
External Governance ◽  
Board Level

ABSTRACT Data security breaches have been shown in the literature to negatively affect firm operations. Auditors serve as an important, external governance mechanism with respect to a firm's overall risk management protocol. Consequently, our study examines whether auditors price breach risk into their fees and if a firm's internal governance can mitigate the potential increases in audit fees. Using a sample of breached firms ranging from 2005–2014, we adapt the Houston, Peters, and Pratt (2005) model to explore how auditors view audit risk related to breach risk. We find that breaches are associated with an increase in fees, but the result is driven by external breaches. Our evidence suggests the presence of board-level risk committees and more active audit committees may help mitigate the breach risk audit fee premium. Additional evidence suggests that both past breach disclosures as well as future disclosures are associated with audit fees.

scholarly journals Internal Governance Structure and External Audit Fee: Malaysia Evidence

2018 ◽  
Vol 1 (1) ◽  
Author(s):  
Maisarah Abd Rahim
Keyword(s):  
Boards Of Directors ◽  
Audit Committee ◽  
Committee Member ◽  
Audit Fees ◽  
Governance Structure ◽  
Audit Committees ◽  
Future Research ◽  
External Audit ◽  
Internal Governance ◽  
Audit Fee

Internal governance structure plays a role in improving quality of financial reporting, thus determining external audit fee is very important. The objective of this study is to examine the association between external audit fees and internal governance structure (boards and audit committee characteristics). The methodology used based on the sample of 115 companies listed on the Bursa Malaysia Main Market in 2015. It is hypothesized that external audit fees will be positively associated with board of director and audit committee’s independence, expertise and meeting frequency. As a result, the findings reveal that no variable found to be significant to external audit fee except for audit committee expertise (audit committees who being accounting professional members). Audit committee expertise indicate negative and significant relationship with external audit fee which implies that the existence more audit committee member who possess accounting professional certification tend to provide complementary effect towards audit effort in the process of negotiating audit fee, thus lower audit fee will be paid. The study suggests there are opportunities to include other variables such as director’s remuneration, ownership structure or /and audit tenure for future research.   Keywords: Corporate Governance, Boards of Directors, Audit Committees, External Audit Fee, Malaysia  

scholarly journals Kualitas Audit: Ditinjau dari Fee Audit, Risiko Audit dan Skeptisme Profesional Auditor sebagai Variabel Moderating

2020 ◽  
Vol 8 (1) ◽  
pp. 9
Author(s):  
Muslim Muslim ◽  
Syamsuri Rahim ◽  
Muhammad Faisal AR Pelu ◽  
Alma Pratiwi
Keyword(s):  
Regression Analysis ◽  
Audit Quality ◽  
Audit Fees ◽  
Public Accounting ◽  
Audit Risk ◽  
Accounting Firms ◽  
Professional Skepticism ◽  
Audit Fee ◽  
The Relationship ◽  
Positive Effect

The purpose of this study was to determine the effect of audit fees and audit risk on audit quality with auditor professional skepticism as a moderating variable. This research was conducted at 8 public accounting firms in Makassar city with 40 respondents. The analytical method used is multiple regression analysis (Moderated Regression Analysis) which is used to measure the strength of the relationship between two or more variables. The results of this study found that the audit fee variable had a negative and not significant effect on audit quality. These results illustrate that the higher the audit fee received by the auditor, the audit quality will decrease. While audit risk is not a significant positive effect on audit quality. The results of this study illustrate that the higher the audit risk, the audit quality will decrease. The auditor's professional skepticism as a moderating variable is not able to strengthen the effect of audit fees on audit quality. Furthermore, auditor professional skepticism as a moderating variable is also unable to strengthen the effect of audit risk on audit quality

scholarly journals Family control, audit committees and audit fees

2010 ◽  
Vol 7 (3) ◽  
pp. 73-85 ◽  
Author(s):  
Sidney Leung ◽  
Ran Wang
Keyword(s):  
Hong Kong ◽  
Audit Committee ◽  
Positive Association ◽  
Audit Fees ◽  
Audit Committees ◽  
Fiscal Year ◽  
Audit Risk ◽  
Family Control ◽  
The Impact

This paper examines the impact of family control on audit effort and audit risk as proxied by audit fees, the relation between the quality of the audit committee (AC) and audit fees, and how family control influences the association between AC quality and audit fees. Using a sample of Hong Kong companies from the 2005/06 fiscal year, we find that family-controlled firms have lower audit fees. The results also show a positive association between AC quality and audit fees in Hong Kong. Moreover, the association of higher AC quality with higher audit fees is stronger in family-controlled firms than in non-family-controlled firms. Collectively, our findings suggest that audit committees in family-controlled firms require a higher degree of external audit effort than do those in non-familycontrolled firms.

scholarly journals Internal and external governance mechanisms: Evidence from the Nigerian banking industry

2005 ◽  
Vol 2 (3) ◽  
pp. 62-67 ◽  
Author(s):  
Olatundun J. Adelegan
Keyword(s):  
Great Proportion ◽  
Banking Industry ◽  
Audit Committees ◽  
Annual Reports ◽  
Executive Directors ◽  
Governance Mechanism ◽  
External Governance ◽  
The Relationship ◽  
Nigerian Banking

This paper examines the relationship between internal and external governance mechanism employed by Nigerian banking companies. Data for the study was obtained from the annual reports of bank in Nigeria. I find a higher portion of non-executive directors and a greater likelihood of separating the role of company chairman and CEO in banks compared to similar studies of Nigerian quoted companies. The proportion of non-executive directors who are former executives is low. These suggest those banks are more likely to employ non-executives for monitoring. Banks in Nigeria have utilized audit committees since 1991 and the audit committees in Nigerian banks possess a great proportion of non-executive directors.

The impact of non-timely 10-Q filings and audit firm size on audit fees

2018 ◽  
Vol 33 (5) ◽  
pp. 503-516 ◽  
Author(s):  
Tiffany Chiu ◽  
Feiqi Huang ◽  
Yue Liu ◽  
Miklos A. Vasarhelyi
Keyword(s):  
Regression Model ◽  
Firm Size ◽  
Audit Fees ◽  
Audit Risk ◽  
Content Type ◽  
Audit Firm ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Fee ◽  
The Impact

Purpose Prior studies suggest that non-timely 10-Q filings indicate higher potential risks than non-timely 10-K filings. Furthermore, larger audit firms tend to be more risk-averse and conservative about reporting. Inspired by these research streams, this paper aims to investigate the influence of non-timely 10-Q filings on audit fees and the impact of audit firm size on this association. Design/methodology/approach The cross-sectional audit fee regression model used in this study is similar to that used in prior audit fee research (Simunic, 1980; Francis et al., 2005; Hay et al., 2006; Wang et al., 2013). The model includes the following five major characteristics that would influence auditors’ fee decisions: auditee size (LNAT), complexity (REIVAT, FOREIGN, SEG), financial condition (LOSS, ROA, GROWTH, ZSCORE), special events (ICW, RESTATE, INITIAL, GC) and auditor type (BIG4). To examine the effect of non-timely 10-Q filings on audit fees, the variable NT10Q is included in the audit fee model. Findings The results indicate that when both non-timely 10-K and non-timely 10-Q filings are included in the regression model, only non-timely 10-Q filings are significantly associated with higher audit fees, suggesting that the presence of non-timely 10-Q filings signals more serious underlying problem than non-timely 10-K filings in the audit fees decision processes. In addition, we find that audit fees for firms audited by Big 4 auditors are 26.4 per cent higher when those firms file non-timely 10-Q reports, whereas there is no significant association between non-timely 10-Q filings and audit fees for firms audited by non-Big 4 auditors. Practical implications As no attention has been paid to the investigation of the impact of non-timely 10-Q filings on audit fees, with the aim of filling the gap of this specific research area, this study examines the association between non-timely 10-Q filings and audit fees and the influence of audit firm size on this association. Originality/value The contribution of this paper is threefold: first, it is the first study to examine the association between non-timely 10-Q filings and audit fees. The results show that non-timely 10-Q filings are a better and earlier indicator of audit risk than non-timely 10-K filings. Second, the results reveal that the relationship between non-timely 10-Q filings and audit fees is affected by audit firm size. Specifically, Big 4 auditors tend to charge higher audit fees in the presence of non-timely 10-Q filings, reflecting that they are more sensitive to audit risk than smaller audit firms are. Third, an examination of the quarterly effect of non-timely 10-Q filings on audit fees indicates a stronger effect from the first quarter’s non-timely 10-Q filings, compared to the second or third quarter.

scholarly journals Dynamics of audit lag − board of directors and audit committees’ effect

2015 ◽  
Vol 12 (3) ◽  
pp. 281-294 ◽  
Author(s):  
Rabih Nehme ◽  
Guy Assaker ◽  
Rita Khalife
Keyword(s):  
Corporate Governance ◽  
Board Of Directors ◽  
Financial Institutions ◽  
Audit Committee ◽  
Audit Committees ◽  
Governance Mechanism ◽  
Audit Report ◽  
Corporate Governance Mechanisms ◽  
External Governance ◽  
The Relationship

Audit procedures are considered to be an external governance mechanism tool used by shareholders from an agency theory perspective. The empirical model is constructed to assess the theoretical and statistical relationship between audit lag and corporate governance characteristics over a period of four years (for FTSE 350 companies excluding financial institutions between 2007 and 2010). This paper studies the effect of corporate governance mechanisms, board of directors and audit committee, on audit report lag. The importance of this research comes from the few studies conducted regarding the relationship between corporate governance and audit report lag. It is crucial to understand the determinants of audit lag in order to minimize it as much as possible and accordingly generate timely information.

Financial Restatements, Audit Fees, and the Moderating Effect of CFO Turnover

2009 ◽  
Vol 28 (1) ◽  
pp. 205-223 ◽  
Author(s):  
Dorothy A. Feldmann ◽  
William J. Read ◽  
Mohammad J. Abdolmohammadi
Keyword(s):  
Audit Fees ◽  
Organizational Legitimacy ◽  
Matched Pair ◽  
Control Group ◽  
Executive Turnover ◽  
Audit Risk ◽  
Audit Fee ◽  
Financial Restatements ◽  
Prior Literature ◽  
Legitimacy Crisis

SUMMARY: We examine post-restatement audit fees and executive turnover for a sample of firms that restated their 2003 financial statements. We investigate and find evidence that audit fees are higher for restatement firms compared with a matched-pair control group of non-restatement firms. We propose that the higher audit fees reflect a cost of both an increase in perceived audit risk and a loss of organizational legitimacy. Prior literature suggests that changing top management is a response to a legitimacy crisis; thus we expect to find that executive turnover moderates the positive relationship between restatement and audit fees. Our results indicate that a change in CFO for a restatement firm moderates the increased audit fee, but a change in CEO does not.

Audit fee stickiness

2013 ◽  
Vol 29 (1) ◽  
pp. 2-26 ◽  
Author(s):  
Charl de Villiers ◽  
David Hay ◽  
Zhizi (Janice) Zhang
Keyword(s):  
Audit Fees ◽  
Audit Committees ◽  
Future Research ◽  
Audit Pricing ◽  
Content Type ◽  
Audit Market ◽  
Audit Fee ◽  
The Usa ◽  
The Difference ◽  
One Year

Purpose – This study aims to contribute to the understanding of audit pricing and the competitiveness of the audit fee market by examining audit fee stickiness. Design/methodology/approach – The authors explore the price behavior of audit fees in response to changes in the variables that are usually seen as their determinants, such as size, complexity, and risk in order to examine audit fee stickiness and the competitiveness of the market for audit services. Findings – The authors find that audit fees are sticky, i.e. audit fees do not immediately or fully adjust to changes in their determinants. Audit fees also respond to changes leading to an increase more quickly than they respond to changes leading to a decrease. The difference between positive and negative fee adjustments declines over periods longer than one year and is no longer significant when four-year periods are considered. Research limitations/implications – The study is limited to companies in the USA from 2000 to 2008. Future research should examine this issue in other settings and periods. Practical implications – The results suggest that the audit market is competitive, at least in the medium term. Originality/value – The study helps to explain why the audit fee model does not fully explain the level of audit fees; why audit fees are more likely to be too high than too low; and why auditor switches are commonly associated with larger changes in audit fees. The findings provide evidence that may be useful to managers and audit committees when managing their audit fees, auditors when considering the risks and opportunities associated with changes in the determinants of audit fees, and regulators concerned with the competitiveness of the audit market.

scholarly journals Corporate governance and performance of Turkish banks in the pre- and post-crisis periods

2012 ◽  
Vol 1 (4) ◽  
pp. 47-53
Author(s):  
F. Dilvin Taşkin
Keyword(s):  
Corporate Governance ◽  
Bank Performance ◽  
Governance Mechanism ◽  
Internal Governance ◽  
Return On Equity ◽  
Net Interest Margin ◽  
Bank Ownership ◽  
External Governance ◽  
And Performance ◽  
The Relationship

This paper aims to analyze the relationship between corporate governance and bank performance. Return on asset (ROA), return on equity (ROE) and net interest margin (NIM) is considered as the measures of bank performance. Corporate governance is determined through the measures of internal governance mechanism which is measured by CEO duality and external governance mechanisms which are proxied by discipline exerted by shareholders, creditors and educated personnel and bank ownership. The analysis covers the period 1990-2000 and 2002-2011 which are the pre and post periods of the severe 2001 banking crisis. The results show that different governance characteristics are important in the pre and post crisis periods.

scholarly journals DETERMINAN FEE AUDIT PADA KAP DI JAWA TIMUR

El Dinar ◽  
2014 ◽  
Vol 1 (02) ◽  
Author(s):  
Kholilah Kholilah
Keyword(s):  
Linear Regression Analysis ◽  
Audit Fees ◽  
Multiple Linear Regression Analysis ◽  
Annual Reports ◽  
Audit Risk ◽  
Financial Reports ◽  
Factors Influencing ◽  
Corporate Size ◽  
Audit Fee ◽  
Public Accountant

<p>This study sets out to examine factors influencing audit fees paid on public accountant firm (KAP) in East Java. Data were collected from 2012 company annual reports audited by KAP. An audit fee models using a sample of 84 audited financial reports by using multiple linear regression analysis. The findings show a direct relationship between audit fees and each of corporate size and audit location, an inverse relationship has been detected between audit fees and each of audit risk and seasonality, the findings also revealed that audit fees are not significantly influenced by KAP switching.</p>

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