IDEAS home Printed from https://ideas.repec.org/a/eme/majpps/v27y2012i5p500-525.html
   My bibliography  Save this article

Indicators of audit fees and fraud classification: impact of SOX

Author

Listed:
  • Mary Jane Lenard
  • Karin A. Petruska
  • Pervaiz Alam
  • Bing Yu

Abstract

Purpose - The purpose of this paper is to compare the effect of corporate governance variables and fraud litigation on audit fees both before and after the implementation of the Sarbanes-Oxley (SOX) Act in 2002. Design/methodology/approach - The paper utilizes a sample of firms that had litigation proceedings filed against them for fraudulent financial reporting, and compare these firms to a sample of non-fraud firms in the pre-and post-SOX period. First, the authors examine indicators of audit fees using the Simunic model. Next, the authors develop a logistic regression model with corporate governance variables and other financial control variables in order to identify the characteristics of firms that are accused of fraud in the pre-and post-SOX period. Findings - The paper identifies specific components of corporate governance that are positively related to audit fees and which subsequently aid in classifying companies subject to fraud litigation. The most successful logistic regression model for 2005 (post-SOX) is 64.4 per cent accurate in distinguishing firms litigated for fraud, while the most successful model for 2001 (pre-SOX) is 61.4 per cent accurate in distinguishing such firms. Originality/value - The research design and findings assist in providing additional evidence about the association between the effectiveness of the corporate governance structure and the external auditor in assessing the risk of fraud.

Suggested Citation

  • Mary Jane Lenard & Karin A. Petruska & Pervaiz Alam & Bing Yu, 2012. "Indicators of audit fees and fraud classification: impact of SOX," Managerial Auditing Journal, Emerald Group Publishing, vol. 27(5), pages 500-525, May.
  • Handle: RePEc:eme:majpps:v:27:y:2012:i:5:p:500-525
    as

    Download full text from publisher

    File URL: http://www.emeraldinsight.com/10.1108/02686901211228002?utm_campaign=RePEc&WT.mc_id=RePEc
    Download Restriction: Access to full text is restricted to subscribers

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Ahmed Ebrahim, 2010. "Audit fee premium and auditor change: the effect of Sarbanes-Oxley Act," Managerial Auditing Journal, Emerald Group Publishing, vol. 25(2), pages 102-121, January.
    2. repec:bla:joares:v:28:y:1990:i:1:p:198-210 is not listed on IDEAS
    3. Fen-May Liou, 2008. "Fraudulent financial reporting detection and business failure prediction models: a comparison," Managerial Auditing Journal, Emerald Group Publishing, vol. 23(7), pages 650-662, July.
    4. Santanu Mitra & Mahmud Hossain & Donald Deis, 2007. "The empirical relationship between ownership characteristics and audit fees," Review of Quantitative Finance and Accounting, Springer, vol. 28(3), pages 257-285, April.
    5. repec:kap:iaecre:v:15:y:2009:i:1:p:17-29 is not listed on IDEAS
    6. Jenny Goodwin-Stewart & Pamela Kent, 2006. "Relation between external audit fees, audit committee characteristics and internal audit," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(3), pages 387-404.
    7. Wenxia Ge & G. Whitmore, 2010. "Binary response and logistic regression in recent accounting research publications: a methodological note," Review of Quantitative Finance and Accounting, Springer, vol. 34(1), pages 81-93, January.
    8. Sameer T. Mustafa & Nourhene Ben Youssef, 2010. "Audit committee financial expertise and misappropriation of assets," Managerial Auditing Journal, Emerald Group Publishing, vol. 25(3), pages 208-225, March.
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:majpps:v:27:y:2012:i:5:p:500-525. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman). General contact details of provider: http://www.emeraldinsight.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.