Audit Fee Discounting for Non-Accelerated Filers in the Post-SOX Environment

• In Event: Auditing 2

Abstract

We investigate whether the expected implementation of Section 404(b) of the Sarbanes-Oxley Act (SOX 404(b)) (the integrated audit requirement) caused auditors to discount their audit fees for non-accelerated filers in anticipation of future economic rents (DeAngelo 1981). Based on prior literature, we predict that the auditors charged their non-accelerated filer clients lower audit fees during the years 2005-2007 compared with the years 2010-2012, when it had been determined that non-accelerated filers were permanently exempt from complying with SOX 404(b). We use regression analysis to examine if audit fees increased significantly for non-accelerated filers after the permanent exemption announcement. The results show a significant positive association between the exemption announcement and audit fees, supporting the theory that auditors discounted their audit fees for non-accelerated filers pre-exemption announcement. We contribute to the audit fee literature by studying a unique setting that allows us to show evidence that audit firms discounted fees of non-accelerated filers in the post-SOX environment.

Authors

• Benjamin Hoffman, Kent State University - Kent

• Albert L. Nagy, John Carroll University