Audit fees increase for struggling companies in new audit engagements.
The study looked at how auditors price new audit jobs based on the profitability of the companies they are auditing. They found that auditors still give discounts for new jobs, but are less likely to do so if the company had losses the year before. This is especially true for companies switching from smaller firms to larger ones. This shows that auditors adjust their fees to manage the risk of auditing companies.