رابطه بین کاهش هزینه حسابرسی و کیفیت درآمد و کیفیت حسابرسی
Abstract
Keywords
1. Introduction
2. Related research and hypotheses development
3. Research design
4. Sample
5. Main empirical results
6. Additional measures of earnings quality and audit quality
7. Robustness tests
8. Conclusion
Acknowledgement
Appendix A. Estimation of abnormal accruals
References
Abstract
The Global Financial Crisis (GFC) presents a unique opportunity to study how auditors respond to an exogenous shock to the clients' operating environment. Also, due to the GFC, auditors were under pressure from clients to cut audit fees during the crisis. Regulators were concerned that lower audit fees could result in lower audit effort, and more importantly, impair audit quality. We conduct a comprehensive analysis of multiple attributes of client firms' earnings quality and audit quality. Collectively, our findings indicate that there is no significant difference in earnings quality between client firms that received a fee cut during the GFC and control firms consisting of firms that did not receive a fee cut and firms that received a fee cut before the GFC. Further, there is no significant difference in the likelihood of a going concern opinion or a financial restatement, our proxies for audit quality, between client firms that received a fee cut during the GFC and control firms. Our findings contribute to understanding the role of auditors during the GFC.
1. Introduction
The Global Financial Crisis (GFC hereafter) that originated in late 2007 and the subsequent economic downturn until 2009 resulted in the deepest economic recession since the Great Depression (Kroeker, 2011; Sikka, 2009).1 Also, as a result of the GFC, audit firms were under pressure from their clients and audit committee members to share the economic pain by cutting audit fees. For example, McAfee Inc., maker of security software and a Fortune 500 company with nearly $7 billion in total assets in 2009, was able to cut its audit fee from $6.491 million in 2008 to $4.363 million in 2009, a cut of about 33% even though McAfee's total assets increased by about 7% in 2009. Whitehouse (Whitehouse, 2010a) reports that 63% of the S&P 500 firms won price concessions from their auditors during 2009. By one estimate, the total cut in audit fees for the Big 4 auditors during 2009 was more than $337 million (Professional Services (Professional Services Monitor, 2010)). Thus, the GFC and the resulting audit fee cuts led to a huge financial consequence for the Big 4 auditors. The above economic events are unprecedented and present a unique opportunity to study how auditors respond to an exogenous shock to the clients' operating environment and, more importantly, the effects of widespread and significant cuts in audit fees on clients' earnings quality and audit quality.2 While the GFC per se posed significant challenges to auditors, cuts in audit fees on top of that could exacerbate these challenges. Specifically, the objective of this study is to provide empirical evidence on the relation between audit fee cuts during the GFC period (described in detail below) and multiple proxies for earnings quality (described in sections III and VI) of client-firms. We also examine the effect of fee cuts on the likelihood of going concern opinions and restatement of financial statements, our proxies for audit quality (Defond, Raghunandan, & Subramanyam, 2002; Francis, Michas, & Yu, 2013; Lim & Tan, 2008).