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| Author: | Larcker, D.F. Richardson, S.A. |
| Title: | Fees paid to audit firms, accrual choices, and corporate governance |
| Journal: | Journal of Accounting Research
2004 : JUN, VOL. 42:3, p. 625-658 |
| Index terms: | Accounting Auditors Corporate governance |
| Language: | eng |
| Abstract: | This paper examines the relation btw. the fees paid to auditors for audit and non-audit (hereafter as: n-a.) services , and the choice of accrual measures for a large sample of firms. Using our pooled sample, it is found that the ratio of n-a. fees to total fees has a positive relation with the absolute value of accruals (similar to Frankel, Johnson, and Nelson, 2002). However, using latent class mixture models to identify clusters of firms with a homogenous regression structure reveals that this positive association only occurs for about 8.5 per cent of the sample. In contrast to the fee ratio results, consistent evidence of a negative relation is found between the level of fees. Overall, the results are most consistent with auditor behaviour being constrained by the reputation effects associated with allowing clients to engage in unusual accrual choices. |
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