Audit Fees Around Dismissals and Resignations: Additional Evidence

Journal of Contemporary Accounting & Economics, Forthcoming

Posted: 23 Sep 2011

See all articles by Paul A. Griffin

Paul A. Griffin

University of California, Davis - Graduate School of Management

David H. Lont

University of Otago - Department of Accountancy and Finance

Date Written: September 21, 2011

Abstract

This paper offers new findings about how audit fees vary around auditor dismissals and resignations. For dismissals, we find evidence of lower than normal fees before and after an auditor change, consistent with the view that both incumbent and successor auditors adjust fees downward to retain the client. Our evidence also shows that incumbent and successor auditors charge unusually high fees before and after a resignation. We interpret the higher than normal incumbent fees as an indication that resignation companies reflect unusual levels of audit effort or risk, which the incumbent auditor captures as additional fees. Eventually, however, the additional fees are insufficient, inducing the incumbent to resign. A fee premium by the successor auditor after resignation also supports this view.

Keywords: Dismissals, Resignations, Audit Fees, Incumbent Auditor Fee Adjustments, Event Study

JEL Classification: C30, K22, L80, M40, M41

Suggested Citation

Griffin, Paul A. and Lont, David H., Audit Fees Around Dismissals and Resignations: Additional Evidence (September 21, 2011). Journal of Contemporary Accounting & Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1931842

Paul A. Griffin (Contact Author)

University of California, Davis - Graduate School of Management ( email )

3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)

HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

David H. Lont

University of Otago - Department of Accountancy and Finance ( email )

Box 56
Dunedin, Otago 9054
New Zealand
+64 3 479 8119 (Phone)
+64 3 479 8171 (Fax)

HOME PAGE: http://www.business.otago.ac.nz/acty/

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
913
PlumX Metrics