Audit Fees and Investor Perceptions of Audit Characteristics

Author:

Beck Allison K.1,Fuller Robert M.2,Muriel Leah2,Reid Colin D.3

Affiliation:

1. The Florida State University

2. The University of Tennessee

3. Northeastern University

Abstract

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. Data Availability: Contact the authors.

Publisher

American Accounting Association

Subject

Organizational Behavior and Human Resource Management,Accounting

Reference74 articles.

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2. Trends in Fortune 500 audit and tax spending-implications for corporate tax departments;Alvarez & Marsal,2007

3. American Institute of Certified Public Accountants (AICPA). 1994. AICPA Professional Standards as of June 30, 1994. Chicago, IL: Commerce Clearing House.

4. Cognitive biases and decision support systems development: A design science approach;Arnott;Information Systems Journal,2006

5. The effect of SOX internal control deficiencies on firm risk and cost of equity;Ashbaugh-Skaife;Journal of Accounting Research,2009

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