Financial Restatements, Audit Fees, and the Moderating Effect of CFO Turnover

We examine post-restatement audit fees and executive turnover for a sample of firms that restated their 2003 financial statements. We investigate and find evidence that audit fees are higher for restatement firms compared with a matched-pair control group of non-restatement firms. We propose that th...

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Bibliographic Details
Published in:Auditing : a journal of practice and theory 2009-05, Vol.28 (1), p.205-223
Main Authors: Feldmann, Dorothy A., Read, William J., Abdolmohammadi, Mohammad J.
Format: Article
Language:English
Subjects:
Annual reports
Audit fees
Audit risk
Auditing
Auditing standards
Auditors
Costs
Employee turnover
Executives
Financial reporting
Financial restatements
Financial statements
Hypotheses
Legitimacy
Professional fees
Studies
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Summary:We examine post-restatement audit fees and executive turnover for a sample of firms that restated their 2003 financial statements. We investigate and find evidence that audit fees are higher for restatement firms compared with a matched-pair control group of non-restatement firms. We propose that the higher audit fees reflect a cost of both an increase in perceived audit risk and a loss of organizational legitimacy. Prior literature suggests that changing top management is a response to a legitimacy crisis; thus we expect to find that executive turnover moderates the positive relationship between restatement and audit fees. Our results indicate that a change in CFO for a restatement firm moderates the increased audit fee, but a change in CEO does not.
ISSN:0278-0380
1558-7991
DOI:10.2308/aud.2009.28.1.205