Audit fees and client business risk during the S & L crisis: Empirical evidence and directions for future research

Bank Audit Fees and Asset Securitization Risks

“…Our results are consistent with Hill et al (1994) in this respect. However, without a pre and post comparison, Hill et al (1994) cannot explicitly identify changes in auditors' pricing behavior with the onset of the crisis in general and on specific risk factors.…”

“…In addition, our study period covers the periods before the GFC, during the GFC and after the implementation of FAS 166 and 167; while Doogar et al (2012) only examine the years leading to the GFC until 2007. Our results provide recent evidence consistent with the results reported in Hill et al (1994) concerning auditors' response to business risk factors during crisis periods and consistent with Doogar et al (2012) that auditors actively adjust attention to risk factors with the occurrence of the GFC.…”

“…to the fee premium adjustments on other inherent risk due to the GFC controlled in the model, the result conforms to Hill et al (1994) that shows an increase in audit fees in a crisis environment (Savings and loan crisis) in relation to the increased overwhelming business failure and litigation risk, and is consistent with the public intuition that auditors charge higher fees across the sector after the onset of the GFC, coexisted with the fee-pressure from a large proportion of clients.…”

Bank Audit Fees and Asset Securitization Risks

“…Our results are consistent with Hill et al (1994) in this respect. However, without a pre and post comparison, Hill et al (1994) cannot explicitly identify changes in auditors' pricing behavior with the onset of the crisis in general and on specific risk factors.…”

“…In addition, our study period covers the periods before the GFC, during the GFC and after the implementation of FAS 166 and 167; while Doogar et al (2012) only examine the years leading to the GFC until 2007. Our results provide recent evidence consistent with the results reported in Hill et al (1994) concerning auditors' response to business risk factors during crisis periods and consistent with Doogar et al (2012) that auditors actively adjust attention to risk factors with the occurrence of the GFC.…”

“…to the fee premium adjustments on other inherent risk due to the GFC controlled in the model, the result conforms to Hill et al (1994) that shows an increase in audit fees in a crisis environment (Savings and loan crisis) in relation to the increased overwhelming business failure and litigation risk, and is consistent with the public intuition that auditors charge higher fees across the sector after the onset of the GFC, coexisted with the fee-pressure from a large proportion of clients.…”

Asleep at the Wheel (Again)? Bank Audits During the Lead‐Up to the Financial Crisis

“…Our study also differs in three key respects from Hill et al. (), who investigate whether or not bank auditors priced certain key audit risks during the S&L crisis. First, they focus on establishing a significant association between auditee business risks and fees but do not hypothesize or test for changes in that relationship during a period of rapidly evolving business conditions.…”

Auditor's Engagement Risk and Audit Fees: The Role of Audit Firm Alumni

“…Johnstone concludes that auditors use their evaluations of client-related risks and their own firms' risk of loss on the engagement to screen out undesirable clients. Others have reached similar conclusions, that is, pre-engagement risk assessments are regarded as an important determinant in the engagement outcome (Francis and Reynolds, 1998;Jones and Raghunandan, 1998;Pratt and Stice, 1994;Hill et al, 1994;Clarkson and Simunic, 1994;and Huss and Jacobs, 1991).…”

Bank Audit Fees and Asset Securitization Risks

“…Our results are consistent with Hill et al (1994) in this respect. However, without a pre and post comparison, Hill et al (1994) cannot explicitly identify changes in auditors' pricing behavior with the onset of the crisis in general and on specific risk factors.…”

“…In addition, our study period covers the periods before the GFC, during the GFC and after the implementation of FAS 166 and 167; while Doogar et al (2012) only examine the years leading to the GFC until 2007. Our results provide recent evidence consistent with the results reported in Hill et al (1994) concerning auditors' response to business risk factors during crisis periods and consistent with Doogar et al (2012) that auditors actively adjust attention to risk factors with the occurrence of the GFC.…”

“…to the fee premium adjustments on other inherent risk due to the GFC controlled in the model, the result conforms to Hill et al (1994) that shows an increase in audit fees in a crisis environment (Savings and loan crisis) in relation to the increased overwhelming business failure and litigation risk, and is consistent with the public intuition that auditors charge higher fees across the sector after the onset of the GFC, coexisted with the fee-pressure from a large proportion of clients.…”

Asleep at the Wheel (Again)? Bank Audits During the Lead‐Up to the Financial Crisis

“…Our study also differs in three key respects from Hill et al. (), who investigate whether or not bank auditors priced certain key audit risks during the S&L crisis. First, they focus on establishing a significant association between auditee business risks and fees but do not hypothesize or test for changes in that relationship during a period of rapidly evolving business conditions.…”

Auditor's Engagement Risk and Audit Fees: The Role of Audit Firm Alumni

“…Johnstone concludes that auditors use their evaluations of client-related risks and their own firms' risk of loss on the engagement to screen out undesirable clients. Others have reached similar conclusions, that is, pre-engagement risk assessments are regarded as an important determinant in the engagement outcome (Francis and Reynolds, 1998;Jones and Raghunandan, 1998;Pratt and Stice, 1994;Hill et al, 1994;Clarkson and Simunic, 1994;and Huss and Jacobs, 1991).…”

Bank Audit Fees and Asset Securitization Risks

“…Our results are consistent with Hill et al (1994) in this respect. However, without a pre and post comparison, Hill et al (1994) cannot explicitly identify changes in auditors' pricing behavior with the onset of the crisis in general and on specific risk factors.…”

“…In addition, our study period covers the periods before the GFC, during the GFC and after the implementation of FAS 166 and 167; while Doogar et al (2012) only examine the years leading to the GFC until 2007. Our results provide recent evidence consistent with the results reported in Hill et al (1994) concerning auditors' response to business risk factors during crisis periods and consistent with Doogar et al (2012) that auditors actively adjust attention to risk factors with the occurrence of the GFC.…”

“…to the fee premium adjustments on other inherent risk due to the GFC controlled in the model, the result conforms to Hill et al (1994) that shows an increase in audit fees in a crisis environment (Savings and loan crisis) in relation to the increased overwhelming business failure and litigation risk, and is consistent with the public intuition that auditors charge higher fees across the sector after the onset of the GFC, coexisted with the fee-pressure from a large proportion of clients.…”

Asleep at the Wheel (Again)? Bank Audits During the Lead‐Up to the Financial Crisis

“…Our study also differs in three key respects from Hill et al. (), who investigate whether or not bank auditors priced certain key audit risks during the S&L crisis. First, they focus on establishing a significant association between auditee business risks and fees but do not hypothesize or test for changes in that relationship during a period of rapidly evolving business conditions.…”

Auditor's Engagement Risk and Audit Fees: The Role of Audit Firm Alumni

“…Johnstone concludes that auditors use their evaluations of client-related risks and their own firms' risk of loss on the engagement to screen out undesirable clients. Others have reached similar conclusions, that is, pre-engagement risk assessments are regarded as an important determinant in the engagement outcome (Francis and Reynolds, 1998;Jones and Raghunandan, 1998;Pratt and Stice, 1994;Hill et al, 1994;Clarkson and Simunic, 1994;and Huss and Jacobs, 1991).…”