New academic research suggests there is indeed a correlation between pressure on audit fees and audit quality — and it’s not pretty.
In an examination of audit fees, non-audit fees, and client misstatement rates at 561 audit offices from 2004 to 2013, researchers said they found evidence that pressure on audit fees causes firms to steer their attention to non-audit services, which leads to a decline in audit quality. “Audit offices experiencing audit fee pressure appear to focus more on providing non-audit services in relation to their total fees,” says Erik Beardsley, an accounting professor at the University of Notre Dame and a co-author of the study. “And we find that when they do that, audit quality suffers.”
