This study tests whether prior auditor-client tenure Is associated with the audit fees paid to the successor auditor. In the past, studying the association between tenure with the prior auditor and fees charged by the successor was problematic because of the difficulty in controlling for the causes of the auditor change. However, the collapse of Andersen In late 2002 led to a significant number of exogenous auditor switches. Using a sample of former Andersen clients, our major finding Is that audit fees charged by the successor auditor varied positively with the length of the prior auditor's tenure. Given that the audit market is efficient, the observed positive association between current fees and prior auditor tenure suggests to us that successor auditors perceived higher risk from new clients having longer tenure with their previous auditor.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics