Special Purpose Vehicles and Audit Fees

• In Event: Audit Complexity, Audit Efficiency, and Audit Fees

Abstract

We investigate the relationship between audit fees and special purpose vehicles (SPVs). SPVs are separate entities which inherently increase the underlying complexity of firm operations. Further, during the time period examined here (2000-2009) many of these structures were reported off-balance sheet. Utilizing a sample of 33,848 firm year observations, we document a positive and increasing relationship between use of SPVs and audit fees. Specifically, we find that use of SPVs, on average, increases audit fees by more than 9 percent while firms with the highest number of SPVs experience audit fees which are over 41 percent higher than firms without SPVs. Overall, our results suggest that auditors price the additional work and risk associated with client utilization of these structures. Evidence provided here is important in better understanding the total costs associated with use of SPVs and in understanding the effects of unique forms of complexity on audit fees.

Authors

• Angela Wheeler Spencer, Oklahoma State University

• Thomas Zachary Webb, Mississippi State University

• Tong Yu, University of Wisconsin–Whitewater