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Internal control deficiencies and audit pricing: evidence from initial public offerings
Author(s) -
Lee Jong Eun
Publication year - 2018
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12241
Subject(s) - initial public offering , audit , business , accounting , control (management) , internal audit , internal control , audit risk , association (psychology) , economics , psychology , management , psychotherapist
Prior evidence on the association between internal control deficiencies and audit fees pertains to public companies. In this study, I investigate the association between internal control deficiencies identified in initial public offering ( IPO ) audits and audit fees, as well as which factors drive the association. I find that IPO firms with internal control deficiencies regarding pre‐ IPO financial reporting are likely to pay higher IPO audit fees, which suggests that auditors adjust audit fees for the increased internal control risk. In addition, I find that the fees are positively and significantly associated with the severity of the type of deficiencies.