AAA Spark Meeting of Regions

Client Ethics and Audit Pricing

• In Event: Audit Pricing, Non-Financial Misconduct and Client Ethics

Abstract

This study examines the impact of an audit client’s code of ethics on audit fees. By clarifying the boundaries of ethical practice, a code of ethics makes relevant social norms more salient and has potential to deter opportunistic behaviors and business misconduct. Using a sample of U.S firms included in the S&P 500 index, we find that a client with a high-quality code of ethics pays significantly lower audit fees. Our results also suggest that a high-quality code of ethics is associated with less auditor effort and lower litigation risk.

Authors

• Hong Kim Duong, Old Dominion University

• Anh Ngo, Norfolk State University

• Anthony Chen, California State University, Fullerton

• Giorgio Gotti, University of Texas at El Paso