| Summary: | 碩士 === 國立中央大學 === 會計研究所 === 105 === The accounting scandals continue to break out since 2001. Various parties have questioned that the incentive-based contracts are the solution to the agency problem. Given that auditors are important participants in capital markets, the authorities begin to develop related guidelines to require auditors to consider managerial incentive compensations into the audit process. Researchers also start to study this issue, using the researcher perspective.
In contemporary auditing literature, audit fees are considered to include all firms’ information. However, researchers can’t explain the composition of all audit fees. The part of the fees that researchers can’t explain, but auditors do charge due to their domain knowledge, which are called unexpected audit fees, reflecting the auditor perspective.
This study uses the auditor perspective to investigate the relationship between executive incentives and unexpected audit fees. Using a sample of US S&P 1500 firms, we discuss the incentive compensations of CEOs and CFOs. We use two measures of equity incentives, the sensitivity of the value of executives’ equity portfolios to changes in stock price (delta incentive) and to changes in stock return volatility (vega incentive). We document our results below.
(1)We find an association between executive incentives and unexpected audit fees, which mean that auditors do concern executive incentives in audit planning.
(2) Our results support that auditors pay more attention on delta incentives than vega incentives.
(3) Our results support that auditors care more about CEOs’ incentives than CFOs’ incentives.
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