Abnormal Audit Fees and Audit Quality Post PCAOB

Abstract

The purpose of this study is to examine whether mandated introduction of Public Company Accounting Oversight Board in United States of America improves the audit quality for listed companies. The empirical analysis includes the companies listed in NASDAQ stock exchange that constitutes 6,600 firm-year observations for the period from 2008 to 2015. The paper use Modified Jones model to estimate signed discretionary accruals and unsigned discretionary accruals as a proxy for audit quality. It is found that Public Company Accounting Oversight Board improves audit quality and the relationship between abnormal audit fees and audit quality is asymmetric and conditional upon the sign of abnormal fees. It reveals that there is a significant difference between the impact of negative abnormal audit fees and positive abnormal audit fees on audit quality at least in case of unsigned discretionary accruals. The paper admits that the empirical analysis does not capture all the variables to observe the matrix; however, sensitivity analysis is attempted to check the accuracy of the results.

Keywords: Audit Quality, Discretionary Accruals, Fee Premium, Normal Audit Fees, Abnormal Audit Fees

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