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Abnormal audit fees and audit quality: Australian evidence

Author

Listed:
  • Sarowar Hossain

    (School of Accounting, Business School, University of New South Wales, Sydney, NSW, Australia)

  • Jenny Jing Wang

    (School of Business, University of Wollongong, Wollongong, NSW, Australia)

Abstract

We examine the association between abnormal audit fees and audit quality using Australian data. We find that audit quality, measured by auditors’ propensity to issue going concern opinions for financially distressed companies, discretionary accruals, and clients’ propensity to meet or beat earnings benchmarks, declines as positive abnormal audit fees increase in magnitude. Our findings support an economic bonding argument that positive abnormal audit fees reflect the extent of economic bonding between the auditor and the client. We also find that negative abnormal audit fees are negatively associated with the absolute value of discretionary accruals. Our findings suggest that academic researchers, practitioners, regulators, and others interested in assessing the effect of auditor remuneration on auditor independence and audit quality should be concerned with audit fees that are above a normal level rather than audit fees that are below a normal level of audit fees. JEL Classification: M42, M49

Suggested Citation

  • Sarowar Hossain & Jenny Jing Wang, 2023. "Abnormal audit fees and audit quality: Australian evidence," Australian Journal of Management, Australian School of Business, vol. 48(3), pages 596-624, August.
    • Handle: RePEc:sae:ausman:v:48:y:2023:i:3:p:596-624
    DOI: 10.1177/03128962221093831
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    References listed on IDEAS

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    More about this item

    Keywords

    Abnormal audit fees; audit quality; auditor independence; discretionary accruals; going concern;
    All these keywords.

    JEL classification:

    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M49 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Other

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