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This study examines whether auditors compromise accounting quality by charging abnormally high audit fees. In particular, by drawing on the audit pricing theory, we investigate the relationship between abnormal audit fees and accounting quality, using fee residuals derived from an audit fee model that includes audit hours and hourly fees. Using listed firms in the Korean stock market, we find that the negative relationship between abnormal audit fees and accounting quality does not hold when we use abnormal audit fees estimated after controlling for audit hours. In contrast, we find a negative association between abnormally high audit fees, estimated after controlling for hourly fees, and accounting quality. Collectively, these findings support the interpretation that the negative relationship between abnormal audit fees and accounting quality, identified in previous studies, is driven by increased audit hours owing to lower accounting quality. Furthermore, we find that these results are driven by audit partner hours and senior auditor hours rather than junior auditor hours. This suggests that audit firms impose higher-level audit hours in the presence of low accounting quality, which results in higher audit fees.

Abnormal audit fees and accounting quality: further evidence from audit hours