The effect of Enron, Andersen, and Sarbanes‐Oxley on the US market for audit services

Sharad Asthana, Steven Balsam and Sungsoo Kim

Accounting Research Journal, 2009, vol. 22, issue 1, 4-26

Abstract: Purpose - The purpose of this paper is to examine the effect of the Enron scandal, Arthur Andersen's demise and the Sarbanes‐Oxley Act on audit fees. Design/methodology/approach - The paper uses empirical methodology (univariate and multivariate). Findings - Audit fees and the Big‐4 premium increased in 2002. Increase was larger for bigger and riskier clients. Evidence is also consistent with a competitive market for former Andersen clients. Research limitations/implications - Data requirements might bias the sample towards larger sized firms. Data availability limits the number of observations. Practical implications - The research findings on audit fees in post‐Enron and Arthur Andersen period reported in this paper are important for policy makers. Originality/value - It is found that the premium charged by Big 4 over non‐Big 4 has increased in 2002, and that the ability of an auditor to charge a premium is adversely affected when its reputation is tarnished. It is also reported that the frequency of voluntary switches within the Big 4 is lowest in 19 years. The audit fee model was also refined by adding two ownership variables to control for agency aspect of client firms; inside and institutional ownership.

Keywords: United States of America; Auditor's fees; Legislation; Auditing standards (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:arjpps:v:22:y:2009:i:1:p:4-26

DOI: 10.1108/10309610910975306

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