Audit Firm Assessments of Cyber-Security Risk: Evidence from Audit Fees and SEC Comment Letters

Pierangelo Rosati, Fabian Gogolin and Theo Lynn
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Pierangelo Rosati: Irish Institute of Digital Business, DCU Business School, Dublin City University, Collins Avenue, Glasnevin, Dublin 9, Ireland
Fabian Gogolin: Leeds University, Business School, UK
Theo Lynn: Irish Institute of Digital Business, DCU Business School, Ireland

The International Journal of Accounting (TIJA), 2019, vol. 54, issue 03, 1-56

Abstract: This study investigates the impact of cyber-security incidents on audit fees. Using a sample of 5,687 firms, we find that (i) breached firms are charged 12% higher audit fees, and (ii) firms operating in the same industry of a breached firm are charged 5% higher fees. Finally, using a difference-in-difference regression on a propensity score matched sample, we provide evidence suggesting that auditors do not revise their audit risk assessment following a breach. Overall, these results suggest that the increase in audit fees in the year of a breach is only temporary, and that auditors include cyber-security risk in their audit risk assessment even before an incident occurs. Higher cyber-security risk is ultimately reflected in higher audit fees paid by auditees.

Keywords: Audit risk; audit fees; cyber security; SEC comment letters (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (7)

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DOI: 10.1142/S1094406019500136

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