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Abnormal audit fees and audit quality: initial evidence from the German audit market

Zeitschrift für Betriebswirtschaft, 2015, Vol.85 (1), p.45-84 [Peer Reviewed Journal]

Springer-Verlag Berlin Heidelberg 2014 ;Journal of Business Economics is a copyright of Springer, 2015. ;ISSN: 0044-2372 ;EISSN: 1861-8928 ;DOI: 10.1007/s11573-014-0709-5

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  • Title:
    Abnormal audit fees and audit quality: initial evidence from the German audit market
  • Author: Krauß, Patrick ; Pronobis, Paul ; Zülch, Henning
  • Subjects: Accounting/Auditing ; Audit fees ; Auditors ; Audits ; Business and Management ; Business Taxation/Tax Law ; Financial restatements ; Human Resource Management ; International Financial Reporting Standards ; Operations Management ; Organization ; Original Paper ; Professional fees ; Quality of work
  • Is Part Of: Zeitschrift für Betriebswirtschaft, 2015, Vol.85 (1), p.45-84
  • Description: This study investigates the economic auditor–client dependency issue by examining the association between abnormal audit fee pricing and audit quality. Our study is the first to analyze this phenomenon empirically for the institutional setting of German IFRS firms by using a sample of 2,334 firm-year observations for the period from 2005 to 2010. Our empirical results demonstrate that positive abnormal audit fees are negatively associated with audit quality and imply that the audit fee premium is a significant indicator of compromised auditor independence due to economic auditor–client bonding. Audit fee discounts generally do not lead to a reduced audit effort, or respectively, audit quality is not impaired when client bargaining power is strong. The association of positive abnormal audit fees and audit quality is robust to different audit quality surrogates such as absolute discretionary accruals, financial restatements, and meeting or beating analysts’ earnings forecasts.
  • Publisher: Berlin/Heidelberg: Springer Berlin Heidelberg
  • Language: English
  • Identifier: ISSN: 0044-2372
    EISSN: 1861-8928
    DOI: 10.1007/s11573-014-0709-5
  • Source: ProQuest Central
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