Auditors' Fee Premiums and Low-Quality Internal Controls

• 成果类型: Article
• 署名作者: Bae, Gil S.; Choi, Seung U. K.; Lamoreaux, Phillip T.; Lee, Jae E.
• 署名单位: Korea University; Kyung Hee University; Arizona State University; Arizona State University-Tempe; Hongik University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12602
• 发表日期: 2021
• 页码: 586-620
• 关键词: business risk; corporate governance; LITIGATION RISK; weaknesses

摘要

We examine the relation between low-quality internal controls and audit fee premiums. Using a novel data set of audit hours and audit fees we find, consistent with the audit risk model, that auditors increase their effort (hours) owing to low internal control quality. We find that auditorsalsocharge a significant fee premium to clients with internal control weaknesses. This premium is observed for severe internal control weaknesses and companies with low-quality alternative governance mechanisms. The results are robust to multiple methods to address endogeneity, including company fixed effects, difference-in-differences design, and a propensity score-matched sample. Taken as a whole, low internal control quality leads to fee premiums, which are a deadweight loss to client companies.