Do failed auditors receive lower audit fees from continuing engagements?

Kam-Wah Lai; Ferdinand A. Gul

doi:10.1007/s11156-020-00922-9

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Do failed auditors receive lower audit fees from continuing engagements?

Journal article

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Do failed auditors receive lower audit fees from continuing engagements?

Kam-Wah Lai and Ferdinand A. Gul

Review of Quantitative Finance and Accounting, Vol.56(3), pp.1159-1190

2020

DOI: https://doi.org/10.1007/s11156-020-00922-9

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Abstract

audit fees

audit failure

continuing engagements

auditor reputation

clean opinions

This study investigates whether a failed auditor suffers from reduced audit fees from clients who continue to employ him and whether the reduced audit fees are more pronounced when the failed auditor is not a market leader. The subject audit firm Deloitte Touche Tohmatsu (Deloitte), Hong Kong, issued a clean audit opinion to a client on its 1997 financial statements which were subsequently found to have accounting errors because of fraud and other irregularities by KPMG. Consequently, Deloitte resigned from the engagement and withdrew its audit report for the client. Results show that Deloitte had more negative change in audit fees than other auditors after the event, and the reduced audit fees were more pronounced when Deloitte was not the market leader. Additional tests suggest that Deloitte did not reduce its audit quality after the event.

Details

Title: Do failed auditors receive lower audit fees from continuing engagements?
Authors: Kam-Wah Lai (Corresponding Author) - Western Sydney University
Ferdinand A. Gul (Author) - Deakin University
Publication details: Review of Quantitative Finance and Accounting, Vol.56(3), pp.1159-1190
Publisher: Springer New York LLC
DOI: 10.1007/s11156-020-00922-9
ISSN: 1573-7179
Grant note: BQ904 / University Grants Committee (http://dx.doi.org/10.13039/501100001839) Chu Hai College of Higher Education
Organisation Unit: University of the Sunshine Coast, Queensland; School of Business and Creative Industries
Language: English
Record Identifier: 99679192602621
Output Type: Journal article

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