Are abnormal audit fees informative about audit quality? The moderating role of office resource availability

Abstract

We contribute to the literature on the relation between client‐level abnormal (excess) audit fees and audit quality by offering a novel perspective. We posit that audit office‐level resource availability moderates the relation between client‐level audit fees and audit quality. This is because office‐level resources (audit partners, staff, technology and administrative support) are generally shared across engagements and can augment those engagements that are resource constrained. We first provide evidence that office‐level resource availability is informative about audit quality incremental to client‐level abnormal fees and several other client and auditor characteristics, including office size. More importantly, we find that client‐level abnormal fees are informative about audit quality only for audit offices that are resource‐constrained but not for offices that are not resource‐constrained.