The Relation between Managerial Ability and Audit Fees and Going Concern Opinions

While prior research has examined the relation between firm-level attributes and auditors' decisions, there is little empirical evidence on whether managerial attributes are informative to auditors. We examine the relation between managerial ability, i.e., ability in transforming corporate reso...

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Bibliographic Details
Published in:Auditing : a journal of practice and theory 2015-08, Vol.34 (3), p.139-160
Main Authors: Krishnan, Gopal V., Wang, Changjiang
Format: Article
Language:English
Subjects:
Audit fees
Auditors
Auditors opinions
Decision analysis
Fees & charges
Going concerns
Managerial skills
Resource management
Studies
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Summary:While prior research has examined the relation between firm-level attributes and auditors' decisions, there is little empirical evidence on whether managerial attributes are informative to auditors. We examine the relation between managerial ability, i.e., ability in transforming corporate resources to revenues, and audit fees and a going concern opinion. We use the managerial ability measure recently developed by Demerjian, Lev, and McVay (2012). We find that incremental to firm-level attributes, both audit fees and the likelihood of issuing a going concern opinion are decreasing in managerial ability. Collectively, our findings support the notion that managerial ability is relevant to auditors' decisions.
ISSN:0278-0380
1558-7991
DOI:10.2308/ajpt-50985