Initial Evidence on the Association Between Non-Audit Fees and Restated Financial Statements

Posted: 17 Feb 2005

See all articles by Kannan Raghunandan

Kannan Raghunandan

Florida International University (FIU) - School of Accounting

William J. Read

Bentley University - Department of Accountancy

Scott Whisenant

University of Kansas

Abstract

An increasing number of firms have restated previously issued financial statements in recent years. Legislators, regulators, and others speculate that restatements are associated with fees received by auditors for non-audit services (non-audit fees). The current study provides empirical evidence about the association between firms that restate financial statements and the non-audit service fees received by incumbent auditors during reporting periods that required restatement.

We identify a sample of 110 firms that restated financial statements previously filed with the SEC for fiscal years 2000 or 2001, and provided relevant audit and non-audit fee data. We compare the fees paid by the restatement sample with fee data for 3,481 firms that filed proxies with the SEC from February 5, 2001 to August 31, 2001 and develop benchmarks for expected non-audit fees, fee ratio, and total fees. Using these benchmarks, we calculate the unexpected values for these measures and investigate whether restatement firms differ from the control firms. Our findings of no significant differences between the restatement and control samples for unexpected non-audit fees, fee ratios, and total fees do not support concerns that either non-audit fees or total fees inappropriately influence the audit and lead to restatements.

Note: Previously titled, "Are Non-Audit Fees Associated with Restated Financial Statements? Initial Empirical Evidence"

Keywords: restatements, audit fees, independence

JEL Classification: M41, M49, C30, G10, Ll5

Suggested Citation

Raghunandan, Kannan and Read, William J. and Whisenant, Scott, Initial Evidence on the Association Between Non-Audit Fees and Restated Financial Statements. Available at SSRN: https://ssrn.com/abstract=662301

Kannan Raghunandan

Florida International University (FIU) - School of Accounting ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States
305-348-2582 (Phone)

William J. Read

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452
United States

Scott Whisenant (Contact Author)

University of Kansas ( email )

Capitol Federal Hall, #4101
1654 Naismith Dr.
Lawrence, KS 66045
United States
785-864-7577 (Phone)

HOME PAGE: http://https://business.ku.edu/scott-whisenant

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