Auditors' Fee Premiums and Low-Quality Internal Controls
- Authors
- Bae, Gil S.; Choi, Seung U. K.; Lamoreaux, Phillip T.; Lee, Jae E.
- Issue Date
- 3월-2021
- Publisher
- WILEY
- Keywords
- internal control; audit fees; auditor effort; risk premium; Korea
- Citation
- CONTEMPORARY ACCOUNTING RESEARCH, v.38, no.1, pp.586 - 620
- Indexed
- SSCI
SCOPUS
- Journal Title
- CONTEMPORARY ACCOUNTING RESEARCH
- Volume
- 38
- Number
- 1
- Start Page
- 586
- End Page
- 620
- URI
- https://scholar.korea.ac.kr/handle/2021.sw.korea/128521
- DOI
- 10.1111/1911-3846.12602
- ISSN
- 0823-9150
- Abstract
- We examine the relation between low-quality internal controls and audit fee premiums. Using a novel data set of audit hours and audit fees we find, consistent with the audit risk model, that auditors increase their effort (hours) owing to low internal control quality. We find that auditorsalsocharge a significant fee premium to clients with internal control weaknesses. This premium is observed for severe internal control weaknesses and companies with low-quality alternative governance mechanisms. The results are robust to multiple methods to address endogeneity, including company fixed effects, difference-in-differences design, and a propensity score-matched sample. Taken as a whole, low internal control quality leads to fee premiums, which are a deadweight loss to client companies.
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Collections - Korea University Business School > Department of Business Administration > 1. Journal Articles
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