The impact of the global financial crisis on audit and non-audit fees

Abstract

Purpose – The paper aims to investigate audit and non-audit fees during the global financial crisis (GFC) in an environment that is relatively sparsely regulated with regard to the provision of non-audit services. Design/methodology/approach – Audit and non-audit fees were studied during pre-GFC (2006-2007), GFC (2008-2009) and post-GFC (2010-2011) periods. Findings – During the GFC, Swedish companies benefited from an increase in sales and total assets, although return on assets decreased. In this setting, the auditors charged higher audit fees compared with the pre-GFC period, despite the absence of increased audit reporting lags. A significant increase in audit fees continued during the post-crisis periods with auditors paying more attention to companies’ leverage and whether they report losses. At the same time, the companies spent less on non-audit services. Research limitations/implications – This study is limited to companies from Sweden, which was less affected by the GFC. Practical implications – GFC auditors are able to charge higher audit fees to public companies including those that are well-performing during financial crises, and they are also able to increase the audit fees in the post-crisis period. This implies that auditors put in extra audit effort to compensate for higher risk, or that they are good at negotiating prices with their clients. However, non-audit fees decreased during the same period, implying that the demand for these services drops under financial instability. Originality/value – The study highlights auditors’ behavior in the liberal economic environment and it studies both audit fees and non-audit fees before GFC, during GFC and after the GFC. The GFC appears to have provided audit firms the opportunity to extract higher audit fees. Our findings are of interest to managers, auditors and regulators.

The Impact of Union of European Football Associations (UEFA) Financial Fair Play Regulation on Audit Fees: Evidence from Spanish Football

“…Extensive literature reveals that the audit fees are positively related to risk, as evinced in the papers by Xu et al (2013), Zhang and Huang (2013), Alexeyeva and Tobias (2015), and Groff et al (2017). That is, higher client risk may expose the auditor.…”

Audit fees and financial crisis: Evidence from the spanish manufacturing industries

“…In the period of economic recession, in addition to questioning the quality and role of auditing in society, the high level of auditors' fees is also called into question (Sikka, 2009). In fact, the research carried out by Krishnan and Zhang (2014), the studies of Xu, Carson, Fargher and Jiang (2013), the works of Zhang and Huang (2013), Sonu, Ahn and Choi (2017) and the analyzes of Alexeyeva and Svanström (2015), respectively on the realities of the United States, Australia, China, Korea, and Sweden, regarding auditors' fees, in a liberal regulatory environment, do not show consistent results, and are even contradictory. Indeed, with regard to Australia, China and Sweden, the evidence presented points to the fact that despite the financial crisis, there was an increase in audit fees, whereas in the USA and Korea, the reality is the opposite.…”

“…The same occurred in 2008 and 2009 (Krishnan and Zhang, 2014); (2) In many European countries, empirical studies are scarce or nonexistent. The study carried out by Alexeyeva and Svanström (2015), referring only to the Swedish listed companies, admit that their impact was very smooth; (3) The study analyzes the level of the auditors' fees practiced in the Spanish industrial sector in two successive financial crisis periods; (4)By analyzing the relationship between audit fees and macroeconomic variables we provide investors and regulators with a better understanding of the impact of the recession on audit fees, which is likely to encourage more active supervision.…”

Audit fees and the salience of financial crisis: evidence from Slovenia

“…They report that in Australia the auditors faced increasing scrutiny by both, regulators and audit report users during the financial crisis (including several legal actions against them), suggesting a high litigation risk environment. In addition to Australia, evidence of increasing audit fees in times of the recent financial crisis is reported by Zhang and Huang (2013) for the Chinese listed companies that faced higher risk in times of the crisis, export oriented companies in particular and by Alexeyeva and Svanström (2015) for the companies listed on the NASDAQ OMX in Stockholm. Although the authors reporting the evidence from Sweden find support for increasing audit fees during the financial crisis period they found no evidence of increasing auditor effort in the studied period.…”