Articulation-Based Accruals and Audit Fees

50 Pages Posted: 1 Nov 2018

See all articles by Ryan Casey

Ryan Casey

University of Denver

Feng Gao

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Michael Kirschenheiter

College of Business Administration University of Illinois at Chicago

Siyi Li

California State University, Fullerton - Department of Accounting

Shail Pandit

University of Illinois at Chicago

Date Written: September 24, 2018

Abstract

This paper examines the relation between audit fees and accruals from a balance sheet auditing perspective. We argue that the underlying economic characteristics of various transactions, as reflected in the articulation-based accruals in Casey et al. (2017), are predictably associated with audit fees. We are the first to demonstrate that total accruals have a non-linear relation with audit prices, with both large positive and large negative total accruals driving audit fees higher. We further disaggregate total accruals based on their accounting and economic characteristics. Accruals originating from the balance sheet and the cash flow statement have a positive relation with audit fees, while the statement of owner’s equity accruals are negatively related to audit fees. We then decompose total accruals into five articulation-based accruals and find that working capital accruals, discontinued operations accruals, and net financial accruals have a linear relationship with audit fees. In contrast, equity investment accruals and net noncurrent operating accruals (mainly driven by depreciation expenses) have a non-linear relationship with audit fees.

Suggested Citation

Casey, Ryan J. and Gao, Feng and Kirschenheiter, Michael and Li, Siyi and Pandit, Shailendra, Articulation-Based Accruals and Audit Fees (September 24, 2018). Available at SSRN: https://ssrn.com/abstract=3263854 or http://dx.doi.org/10.2139/ssrn.3263854

Ryan J. Casey

University of Denver ( email )

2101 South University
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Denver, CO 80208-8921
United States
(303) 871-7695 (Phone)

Feng Gao

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

Janice H. Levin Bldg., Room 121
94 Rockafeller Road
Piscataway, NJ 08854-8054
United States

Michael Kirschenheiter

College of Business Administration University of Illinois at Chicago ( email )

601 South Morgan Street
11th Floor
Chicago, IL 60607
United States
312.996-2284 (Phone)
312.996-4520 (Fax)

Siyi Li

California State University, Fullerton - Department of Accounting ( email )

P.O. Box 34080
Fullerton, CA 92834-6848
United States

Shailendra Pandit (Contact Author)

University of Illinois at Chicago ( email )

601 South Morgan Street
University Hall, Room 2303
Chicago, IL 60607
United States
(312) 355-1331 (Phone)
(312) 996-4520 (Fax)

HOME PAGE: http://business.uic.edu/faculty/shailendra-shail-pandit

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