The Cost of Compliance: FIN 48 and Audit Fees

2014 ◽  
Author(s):  
Matthew Erickson ◽  
Nathan C. Goldman ◽  
James Stekelberg
Keyword(s):  
Audit Fees ◽  
Fin 48 ◽  
The Cost

The Cost of Compliance: FIN 48 and Audit Fees

2015 ◽  
Vol 38 (2) ◽  
pp. 67-85 ◽  
Author(s):  
Matthew J. Erickson ◽  
Nathan C. Goldman ◽  
James Stekelberg
Keyword(s):  
Audit Fees ◽  
Temporary Increase ◽  
Audit Pricing ◽  
Fin 48 ◽  
Disclosure Requirements ◽  
Implementation Costs ◽  
Potential Benefits ◽  
The Cost ◽  
Jel Classifications

ABSTRACT Effective for fiscal years beginning after December 15, 2006, FIN 48 significantly altered uncertain tax benefit (UTB) recognition and disclosure requirements relative to its predecessor standard, FAS 5. We examine the effect of the new standard on audit pricing. We first document that UTB-related audit fees increased following the implementation of FIN 48. However, we also find that this increase is primarily driven by a spike in the audit pricing of UTBs in 2007. Indeed, we find that the audit pricing of UTBs in the 2008–2012 period is not significantly different from that of the 2002–2006 period. We interpret these results to indicate that although firms incurred significant FIN 48 implementation costs, the ongoing audit pricing of UTBs under FIN 48 is similar to that of FAS 5. Our findings suggest that any potential benefits of FIN 48 may outweigh associated costs related to a temporary increase in audit fees. JEL Classifications: H25; M40; M41; M42; M48.

The effects of IFRS adoption and firm size on audit fees in financial institutions in Ghana

2019 ◽  
Vol 32 (3) ◽  
pp. 436-453
Author(s):  
William Coffie ◽  
Ibrahim Bedi
Keyword(s):  
Financial Institutions ◽  
Firm Size ◽  
Financial Services ◽  
Audit Fees ◽  
Financial Services Industry ◽  
Content Type ◽  
Listed Firms ◽  
Ifrs Adoption ◽  
Services Industry ◽  
The Cost

Purpose This study aims to investigate the effects of international financial reporting standards (IFRS) adoption and firm size on auditors’ fees determination in the Ghanaian financial industry. Design/methodology/approach The authors use the annual report of 52 listed and non-listed firms spanning from 2003 to 2014. Guided by the hypotheses, the authors conditioned audit fees on IFRS adoption and firm size and execute robust fixed effects panel regression. Findings The results show that IFRS adoption has a positive coefficient with audit fees suggesting that the adoption of IFRS, indeed, increases the audit fees paid by banks and insurance firms, as well as the industry as a whole. The results are consistent with the idea that IFRS adoption increases auditor efforts with respect to time and complex nature of some aspect of the standards. Again, as expected, the coefficient of size is positively and significantly related to audit fees. This indicates that the size of the auditee plays a vital role in determining audit fees. Research limitations/implications The study is limited by industry (i.e. the financial services industry) and geography (i.e. Ghana). The authors propose further research that will widely consider other sectors and countries to improve the current scanty literature in this area. Besides, theoretically, the study is limited to the lending credibility theory and feels compelled to reiterate the importance of considering alternative theoretical perspective(s) in future research. Practical implications This study is significant to practitioners as it demonstrates the importance of the determinants of the auditors’ fees. It helps auditors to apply the relevant charging formula when determining audit fees, while it helps managers to improve upon the quality of reporting to control audit bill and forecasting their audit expenditure. Originality/value The results of the study extend the literature on the cost side of IFRS adoption by investigating the financial services industry and non-listed firms in a new context, i.e. a developing country where this research is uncharted. The existing studies based their analysis on either cross-section or pooled analysis and shorter post-adoption period (Cameran and Perotti, 2014). However, using an extended post-adoption period data, the authors base the study on analytical panel model, which directly examine the cost side of IFRS adoption with size as joint key explanatory variables with emphasis on financial institutions and external auditors.

A Relative Cost Framework of Demand for External Assurance of XBRL Filings

2012 ◽  
Vol 26 (1) ◽  
pp. 103-126 ◽  
Author(s):  
Michael G. Alles ◽  
Glen L. Gray
Keyword(s):  
Audit Fees ◽  
The United States ◽  
Cost Comparison ◽  
Variable Cost ◽  
Fixed Cost ◽  
External Cost ◽  
Relative Cost ◽  
External Auditors ◽  
Audit Firms ◽  
The Cost

ABSTRACT There has been much discussion in the academic literature and in the XBRL community on the role of audit firms in providing assurance services for XBRL filings, especially now that the use of XBRL has been mandated in the United States. This paper presents the development of a framework of the demand for external assurance of XBRL filings predicated on two relative cost arguments. First, that in the absence of a mandate for XBRL filings to be assured by an external auditor, a manager will compare the cost of obtaining external assurance against the cost of obtaining confidence on the filings internally. Second, managers will be reluctant to pay more for external assurance on an XBRL filing than they paid to prepare it. The former is called the external cost relative to internal cost comparison, and the latter the external cost relative to preparation cost comparison. Based on our relative cost framework, it is predicted that there will only be a role for externally provided assurance of XBRL filings if the cost of that assurance can be either reduced or appear less significant to clients. The former outcome can be brought about by shifting assurance from the XBRL filings themselves to assurance of the preparer through a SSAE No. 16/SAS No. 70 report, thereby converting the cost of XBRL assurance from a variable cost to a fixed cost that is spread among many filers. External auditors can also attempt to make the cost of XBRL assurance less salient to managers by folding that cost into their total audit fees.

scholarly journals Does the impact of IFRS on audit fees differ between early and late adopters?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Vincent Konadu Tawiah
Keyword(s):  
Financial Reporting ◽  
Audit Fees ◽  
Content Type ◽  
Early Adopters ◽  
Financial Reporting Standards ◽  
One Year ◽  
The Cost ◽  
The Impact ◽  
The Relationship ◽  
Practical Implications

Purpose This study aims to examine whether the impact of international financial reporting standards (IFRS) on audit fees differs between early and late adopters. Design/methodology/approach The authors use robust econometric estimation on a sample of 314 firms from both early and late IFRS adopting countries. Findings The authors find that IFRS is positively and significantly associated with an increase in audit fees for early adopters, but the impact is very weak for late adopters and insignificant in some cases. The results on auditing time suggest that increase in audit fees around IFRS adoption is due to an increase in audit reporting lags. After accounting for pre- and post-years, the authors find that the relationship between IFRS and audit fees, as well as audit time for late adopters, is significant only in the adoption year. However, early adopters experience a significant increase in audit fees and audit time in the transition year to one-year post-adoption. Practical implications The findings imply that countries that are yet to adopt IFRS are less likely to experience a significant increase in audit fees audit time. Hence, is probable that the benefit of IFRS will outweigh the cost. Originality/value The results, therefore, suggest that early adopters paid a premium for been the first users of IFRS, which is consistent with any innovation. The study provides new insights by demonstrating that the consequences of IFRS differ between early and late adopters.

scholarly journals Audit Fees, Kinerja Keuangan dan Risiko Perusahaan yang Melakukan Revaluasi Aset: Investigasi Berdasarkan Sektor Industri Manufaktur

1970 ◽  
Vol 4 (01) ◽  
pp. 21-31
Author(s):  
Rima Auliyamartha Agustina ◽  
Darmansyah Darmansyah
Keyword(s):  
Financial Performance ◽  
Audit Fees ◽  
Fair Value ◽  
Industrial Sector ◽  
Jel Classification ◽  
Manufacturing Companies ◽  
Return On Assets ◽  
Fixed Assets ◽  
The Cost ◽  
Corporate Risk

ABSTRACT The revaluation of fixed assets is still not widely applied by the issuers in Indonesia, although the adoption of IFRS has been implemented since 2012. Assets revaluation is done in order for the company to calculate its fixed assets based on fair value so that the financial statements show the actual capability of the company. Factors related to the revaluation in addition to the cost of the appraiser’s services are audit fees, financial performance and corporate risk. The purpose of this study is to see differences in audit fees, financial performance of manufacturing companies reflected by return on assets and debt to assets ratio based on industrial sector in companies that do asset revaluation. The analytical method used is Kruskal-Wallis Test. The results of this study indicate that there are differences in audit fees, return on assets and debt to assets ratios based on industry sectors in companies that perform asset revaluation. ABSTRAK Revaluasi aset tetap masih belum banyak diterapkan oleh para emiten di Indonesia, meskipun pengadopsian IFRS sudah diterapkan sejak tahun 2012. Penilaian kembali atau revaluasi aset dilakukan dengan tujuan agar perusahaan dapat melakukan perhitungan atas aset tetapnya berdasar nilai wajar sehingga laporan keuangan menunjukkan kemampuan perusahaan yang sebenarnya. Faktor-faktor yang berhubungan dengan revaluasi selain biaya jasa penilai adalah audit fees, kinerja keuangan dan risikoperusahaan. Tujuan penelitian ini adalah untuk melihat perbedaan audit fees, kinerja keuangan perusahaan manufaktur yang dicerminkan dengan return on assets dan debt to assets ratio berdasarkan sektor industri pada perusahaan yang melakukan revaluasi aset. Metode analisis yang digunakan adalah uji beda Kruskal-Wallis Test. Hasil penelitian tersebut menunjukkan bahwa terdapat perbedaan dalam audit fees, return on assets dan debt to assets ratio berdasarkan sektor industri pada perusahaan yangmelakukan revaluasi aset. JEL Classification: M41, L60

Costs to Comply with SOX Section 404

2008 ◽  
Vol 27 (1) ◽  
pp. 169-186 ◽  
Author(s):  
Jagan Krishnan ◽  
Dasaratha Rama ◽  
Yinghong Zhang
Keyword(s):  
Firm Size ◽  
Internal Control ◽  
Audit Fees ◽  
Section 404 ◽  
Labor Costs ◽  
Cost Information ◽  
Compliance Costs ◽  
Regulated Industries ◽  
The Cost ◽  
Total Compliance

This study examines companies' costs to comply with SOX 404 and identifies factors that are associated with these costs. SOX 404 costs can be classified into three categories: internal labor costs, external consulting and technology expenses, and auditor attestation charges. While prior research has examined audit fees associated with SOX 404, we examine both total costs and auditor attestation costs associated with SOX 404. Based on a sample of companies that voluntarily disclosed SOX 404 cost information during the period from January 2003 to September 2005, we find that the mean (median) total compliance costs for Section 404 is $2.2 ($1.2) million. Regression analyses indicate that the total compliance costs are positively associated with firm size, the presence of material internal control weaknesses, the cost of setting up new computer systems and establishing formal internal control policies, the involvement of large auditors, the appointment of new CEOs, and are negatively associated with firms in regulated industries and firms that raised new financing. Firm size and the incidence of material weaknesses are also the drivers of SOX 404 audit costs, one component of total SOX 404 costs.

Does Tax Risk Affect Investor Valuation of Tax Avoidance?

2017 ◽  
Vol 34 (1) ◽  
pp. 151-176 ◽  
Author(s):  
Katharine D. Drake ◽  
Stephen J. Lusch ◽  
James Stekelberg
Keyword(s):  
Firm Value ◽  
Tax Avoidance ◽  
Cash Flows ◽  
Equity Capital ◽  
Tax Rates ◽  
Cost Of Equity Capital ◽  
Effective Tax Rates ◽  
Fin 48 ◽  
Tax Benefits ◽  
The Cost

We examine how investors value tax avoidance (measured as the level of cash effective tax rates [ETRs]) and tax risk (measured as the volatility of cash ETRs), and how these constructs interact to influence firm value. Our results suggest that investors positively value tax avoidance but negatively value tax risk and, most importantly, that greater tax risk moderates the positive valuation of tax avoidance. In additional analyses, we find that contemporaneous measures of tax avoidance and tax risk provide insight into future tax cash flows and that our results hold using GAAP ETR-based measures of tax avoidance and tax risk. Finally, our results are robust to a battery of sensitivity checks including controlling for idiosyncratic and systematic risk, the cost of equity capital, and unrecognized tax benefits in the post-FIN 48 period, among others. Broadly, our findings provide new evidence on how taxes affect firm value and suggest that tax avoidance and tax risk should be considered jointly rather than in isolation.

IFRS adoption/reporting and auditor fees: the conditional effect of audit firm size and tenure

2020 ◽  
Vol 28 (4) ◽  
pp. 639-666
Author(s):  
Medhat N. El Guindy ◽  
Nadia Sbei Trabelsi
Keyword(s):  
Audit Fees ◽  
Content Type ◽  
Audit Firm ◽  
Ifrs Adoption ◽  
Audit Firms ◽  
Conditional Effect ◽  
The Uk ◽  
The Cost ◽  
First Time ◽  
Big Four

Purpose This paper aims to investigate the impact of International Financial Reporting Standards (IFRS) adoption on audit and non-audit fees in the UK setting. The study investigates whether UK firms adopting IFRS for the first time or reporting under IFRS, in general, are being charged higher audit and non-audit fees and whether this impact is conditional on audit firm size and tenure. Design/methodology/approach Using empirical data for UK listed firms from 2003-2007, the paper uses a regression model that explains audit and non-audit fees by independent variables measuring auditors’ and auditees’ characteristics including IFRS adoption and reporting. Additional regressions with interaction terms were performed to test the hypothetical conditional impact of auditor size and audit firm tenure on the above-mentioned association. Findings Audit and non-audit fees increase significantly for companies adopting IFRS for the first time and this increase is persistent during later years. In addition, results suggest that both Big four and non-Big four auditors charge higher audit and non-audit fees to their clients adopting or reporting under IFRS in a similar manner. Furthermore, findings indicate that audit firms increase audit and non-audit fees for old and new clients using IFRS which suggests no low-balling effect is detected. Research limitations/implications Results reported in this study provide insights to regulators in jurisdictions similar to the UK regarding the cost of IFRS adoption which includes higher audit and non-audit fees imposed by both Big four and non-Big four audit firms. In addition, this study argues, to some extent, against the notion that auditors may charge lower fees in the early years of the audit engagement to win new audit clients. Originality/value To the best of the knowledge, the findings are unique at two levels. First, the paper provides evidence on the cost of using IFRS in the UK jurisdiction which was not explored by previous research. Second, the paper investigates the potential conditional effect of auditor size and audit tenure on the association between IFRS adoption and auditors’ fees.

Audit fee trends from 2000 to 2014

2018 ◽  
Vol 33 (1/2) ◽  
pp. 61-80 ◽  
Author(s):  
R. Mithu Dey ◽  
Lucy Lim
Keyword(s):  
Extended Period ◽  
Audit Fees ◽  
Policy Makers ◽  
Content Type ◽  
Minimal Impact ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Audit Fee ◽  
Auditing Standards ◽  
The Cost

Purpose Setting audit fees is a persistent source of stress for auditors who must, on one hand, comply with the increasing government regulations that generally cause costs to rise; and on the other hand, respond to client pressures to keep audit fees down. In the post-scandal environment of Enron, WorldCom, and the demise of Arthur Andersen, policy makers have introduced additional costs for auditors by increasing regulations and creating a new industry watchdog – the Public Company Accounting Oversight Board (PCAOB). In this environment of constant pricing-cost tension for the auditor, the purpose of this paper is to examine audit fee trends over an extended period, 2000-2014. Design/methodology/approach The authors calculate the unexpected audit fees using the audit fee model. The authors examine audit fee trends while controlling for changes due to inflation, auditor wages, and other audit fee determinants. Findings The key findings indicate that audit fees increased in response to the promulgation of new audit regulations requiring additional audit work, the Sarbanes-Oxley (SOX) Act of 2002 and Auditing Standard No. 2 in 2004. Additionally, the authors find that audit fees decreased after new regulations alleviating audit work, namely the passage of Auditing Standard No. 5 in 2007, and remained unchanged when new regulations had a minimal impact on audit work, namely the Dodd-Frank Act of 2010. Practical implications The findings of this research are relevant to audit clients, auditors, and regulators as they weigh the cost and benefits of significant new audit regulations and their impacts on audit fees. Originality/value Using the more recent US data, the results in this paper show how events changed audit fee trends in recent years. The findings indicate that audit fees increased after the passage of new audit regulations such as the SOX Act of 2002, Auditing Standards No. 2 in 2004, and decreased after the passage of Auditing Standards No. 5 in 2007.

scholarly journals The effect of gender, public accounting firm size, and company size on audit fee

2019 ◽  
Vol 9 (1) ◽  
pp. 51
Author(s):  
Brian Fitra Herlano ◽  
Amelia Zulfani
Keyword(s):  
Stock Exchange ◽  
Linear Regression Analysis ◽  
Secondary Data ◽  
Audit Fees ◽  
Multiple Linear Regression Analysis ◽  
Public Accounting ◽  
Accounting Firm ◽  
The Public ◽  
Audit Fee ◽  
The Cost

An audit fee is the cost received by the auditor after completing his audit services. This fee is issued by a company who employ an auditor to increase management supervision, the quality of the company’s financial statements, and management independence. This study discusses several independent variables that have been used in previous studies, such as gender, the size of the Public Accounting Firm, and the size of the client’s company. This study aimed to determine the effect of gender, the size of the Public Accounting Firm, and the size of the client’s company on the audit fees in companies listed on the Stock Exchange in 2015-2016. This study uses a quantitative approach with a sample of 46 companies. The selection of samples in this study is conducted using a purposive sampling method. The data used are secondary data obtained from the Indonesia Stock Exchange (IDX). The analysis of the study is conducted using multiple linear regression analysis. The results of the study show that the size of the Public Accounting Firm and the size of the client’s company have an effect on the audit fee, while gender has no effect on the audit fees in companies listed on the Indonesia Stock Exchange ((IDX) in 2015-2016.

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