Auditors' Perceived Business Risk and Audit Fees: Analysis and Evidence

Timothy B. Bell, Wayne R. Landsman and Douglas A. Shackelford

Journal of Accounting Research, 2001, vol. 39, issue 1, 35-43

Abstract: This study analyzes the relation between auditors' perceived business risk and audit fees to determine whether audit firms or their clients bear the expected legal costs of business risk. We predict that hourly audit fees and the number of audit hours are increasing in business risk. Using confidential survey data collected by a large international accounting firm for 422 audits, we find that high business risk increases the number of audit hours, but not the fee per hour. This implies that firms perceive firm‐level differences in business risk and obtain compensation through billing additional hours, not by raising the hourly charge.

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:bla:joares:v:39:y:2001:i:1:p:35-43

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Journal of Accounting Research is currently edited by Philip G. Berger, Luzi Hail, Christian Leuz, Haresh Sapra, Douglas J. Skinner, Rodrigo Verdi and Regina Wittenberg Moerman

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