The Association between Audit Fees and CEO Age

• In Event: Auditing, Audit Quality, and Materiality

Abstract

We investigate the association between the age of a firm’s CEO and the fees charged by the firm’s auditor. Using a sample of 6,848 firm-year observations from 2007 – 2012, we find a significant negative association between audit fees and CEO age, after controlling for influences identified in previous research to be associated with aggressive reporting practices, audit risk, and audit fees.

Our evidence suggests that CEO age captures a dimension of conservatism and ethical decision making that is reflected in audit fees, affirming the usefulness of CEO age as a proxy for conservatism and ethical decision making. We conclude that CEO age could be a potentially valuable consideration for financial statement users, for audit researchers, and for auditors planning audit effort and determining fees.

Authors

• David Manry, University of New Orleans

• Yun-Chia Yan, University of Texas Rio Grande Valley