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Do firms pay for audit risk? Evidence on risk premiums in audit fees after direct control for audit effort
Author(s) -
Niemi Lasse
Publication year - 2002
Publication title -
international journal of auditing
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.583
H-Index - 21
eISSN - 1099-1123
pISSN - 1090-6738
DOI - 10.1111/j.1099-1123.2002.tb00004.x
Subject(s) - audit risk , audit , business , accounting , joint audit , inherent risk (accounting) , internal audit , audit plan , audit evidence , control (management) , business risks , chief audit executive , control environment , external auditor , actuarial science , economics , risk analysis (engineering) , management
This paper documents the existence of risk premiums in actual audit fees after direct control of audit effort through audit hours in a legal environment (Finland) that can be characterised as mildly litigious. Audit fee and hour data were obtained from the internal archives of four Big Six audit firms. The results suggest that when the client is a listed company, or when the auditor's perceived business risk of the client is higher than average, the audit fee contains a risk premium. As the existence of risk premiums can be documented in the institutional setting examined in this paper, they are also likely to be found in more litigious settings.