Business, Management and Accounting
4 years ago

Audit firms' fees impact accrual choices and corporate governance practices.

SSRN Electronic Journal
Fees Paid to Audit Firms, Accrual Choices and Corporate Governance
David F. Larcker, Scott Richardson

Paper Summary

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The article explores how the fees paid to auditors affect a company's financial reporting. They found that higher non-audit fees compared to total fees are linked to larger accruals in only a small portion of firms. However, overall, higher fees paid to auditors (both audit and non-audit) are associated with smaller accruals. This negative relationship is especially strong for companies with weak governance. The results suggest that auditors may be influenced by the reputation impact of allowing clients to make unusual financial choices.