The Impact of Board of Directors’ Turnover on the Association between Financial Restatements and Audit Fees

Lydia Kester, Georgios Georgakopoulos, Petros Kalantonis and Paraskevi Boufounou

Journal of Applied Finance & Banking, 2013, vol. 3, issue 2, 10

Abstract: This study examines the association between financial restatements and audit fees, and the effect of board of directors turnover on this relationship. Restatements are seen as a financial reporting failure, increasing risk for the auditor resulting in a higher audit fee. Regression analysis using the audit fee change model based on prior literature is applied on an U.S. sample. We found no evidence that there is positive significant relationship found between restatements and audit fees. Eventually, the association between restatements and audit fees does not weaken for restatement firms changing board members relative to restatement firms not changing board members. Hence, this implies that board of directors turnover is not an effective strategy to weaken the relationship between restatements and audit fees. This study contributes by responding to the call of Feldmann et al. (2009) to investigate possible indicators, next to CEO and CFO turnover, that firms can take to repair their damaged reputation due to a financial restatement.

Date: 2013
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