Pricing the Audit Risk of Innovation: Intangibles and Patents

Daqun Zhang (), Donald R. Deis and Hsiao-Tang Hsu
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Daqun Zhang: Department of Accounting, Finance, & Business Law, College of Business, Texas A&M University-Corpus Christi, 6300 Ocean Drive, Unit 5808, Corpus Christi, TX 78412, USA
Donald R. Deis: Department of Accounting, Finance, & Business Law, College of Business, Texas A&M University-Corpus Christi, 6300 Ocean Drive, Unit 5808, Corpus Christi, TX 78412, USA
Hsiao-Tang Hsu: Department of Accounting, Finance, & Business Law, College of Business, Texas A&M University-Corpus Christi, 6300 Ocean Drive, Unit 5808, Corpus Christi, TX 78412, USA

IJFS, 2025, vol. 13, issue 1, 1-19

Abstract: The economic literature documents that the investment rate in intangible assets, including intellectual property (IP), has far outpaced that of tangible assets for several decades. In this context, our research delves into the impact of self-created intangible assets on the auditor’s risk assessment. We present compelling evidence that, on average, research and development (R&D) knowledge capital is associated with higher audit fees. Using patent-based metrics as the proxies for innovation outcomes, we reveal that the number of patents (quantity), patent citations (quality-adjusted quantity), and patent technology classes (scope) all positively correlate with audit fees. Additional analyses show that innovation efficiency is negatively associated with audit fees. Furthermore, firms with a higher intensity of knowledge capital are more likely to receive going concern opinions than those with significant innovation outcomes. These findings provide valuable insights into the complex relationship between intangible assets and audit risk assessment.

Keywords: innovation; knowledge capital; intangibles; patents; audit risk; audit fees (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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