The Impact of Client Information Technology Capability on Audit Pricing: Examining Client Risk, Complexity and Size

• In Event: Continental Breakfast and Research & Education Forum
  In Paper Session: Table 9: Audit Fees II

Abstract

This paper explores two related questions: “How does a client’s IT capability influence audit pricing?” and “How does a client’s IT capability influence the relationship between audit fees and the key fee determinants: client risk, client complexity and client size?” It employs data from 2004 to 2012 on companies that are listed on InformationWeek 500, a yearly list of U.S. companies with superior IT functions, as a proxy for firms with superior IT capability.
Evidence suggests that companies with superior IT capability incur higher levels of audit fees. We also find that superior IT capability positively moderates the impact of client size on the level of fees. This indicates that auditors expect additional effort and or cost for clients with advanced IT capability than similarly sized clients with less advanced IT. We find no moderation effect with respect to risk and complexity. The implications of these findings and opportunities for additional research are discussed.

Authors

• Benjamin Hoffman, Kent State University - Kent

• R. Drew Sellers, Kent State University - Kent

• Justyna Skomra, Kent State University