| Summary: | 博士 === 元智大學 === 管理碩士在職專班 === 96 === Audit pricing research has always been approached from the traditional positivist research methodology which yields results that may not give a full account of what determines and influences audit fees. The first essay examines whether and how the Enron affair affected audit fees by investigating the sample before (years 2000 and 2001) and after (years 2002 to 2006) the occurrence of this prominent event in the US audit market. The result shows that, on average, auditors ask for a higher litigation risk premium after the Enron affair if the client has experience a financial restatement. In addition, on average, audit fees have not only increased but that the fee premiums of the remaining Big 4 audit firms are also higher post-Enron. The fee-cutting phenomenon in an initial engagement is still applicable for former Arthur Andersen clients, who had to switch to a new auditor in the year 2002. However, among the clients of Big 4 auditors, the degree of fee-cutting is statistically greater for former Arthur Andersen’s clients as compared to those for non-former Arthur Andersen’s clients, ceteris paribus. The changed structure of audit pricing is not just a one shot reaction by the audit industry, but has lasted to the fourth year. Furthermore, I find that former Arthur Andersen clients require non-audit services in addition to audit service from remaining Big 4 auditor and pay higher audit fees than pre-Enron; and post-Enron, the result shows that when the client is a big company there is evidence of higher fees for Big 4 industry specialists relative to non-specialist auditors.
The second essay examines the association between audit fees and tolerable misstatement under the circumstances where financial statements were restated. I first hypothesize that, due to the litigation risk was induced by client’s earnings management behavior, the scenario of audit fees decrease (increase) with ex post restated earnings increasing (decreasing) extent of earnings management reflecting the maximum tolerable misstatement by auditor and/or Securities and Exchange Commission (SEC). Second, the filing of restated financial statement due to errors in the statement previously submitted to the SEC including enforcement by regulators and client’s voluntary releases. I also hypothesize that the enforced restatements are more associated with higher audit fees than voluntary releases. As Abbott et al. (2006), I hypothesize that the positive relation between increasing earnings (revenues) management amount and audit fees is heightened for clients that are high-growth (high operating risk) firms. I test my hypotheses with a sample of North American non-regulated audited public companies. My data are obtained from the Audit Analytics and Standard &; Poor’s Compustat Research Insight databases from 2001 to 2006. I find that the extent of tolerable misstatements, as estimated by the difference between absolute value of discretionary accruals and restated amount, is negatively associated with audit fees. I also document that financial restatements that were enforced by regulators are associated with higher audit fees, and the interaction of amount of earnings management with price-earnings ratios and operating risk has a significant positive effect on audit fees.
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