Auditor Compensation and Audit Failure: An Empirical Analysis
Preprint
- 27 February 2003
- preprint
- Published by Elsevier in SSRN Electronic Journal
Abstract
Record number of audit failures during the recent past has prompted much debate about whether high auditor compensation, especially for nonaudit work, may have led to lax auditing standards. We shed light on this question by comparing auditor compensation for a set of firms in which accounting improprieties were alleged in a shareholder class action lawsuit with a set of matched firms in the same industry and of similar size. Our evidence suggests that auditors were not compensated differently for either their audit or consulting services over the period in which their client was allegedly involved in an accounting fraud. However, for the set of firms with the largest market reaction to the alleged fraud, the nonaudit component of the total fees was significantly higher than comparable firms even after controlling for other known determinants of auditor compensation.Keywords
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