Academic journal article Auditing: A Journal of Practice & Theory

The Association between Audit Committee Characteristics and Audit Fees

Academic journal article Auditing: A Journal of Practice & Theory

The Association between Audit Committee Characteristics and Audit Fees

Article excerpt

The Securities and Exchange Commission (SEC) and others have emphasized the need for audit committees to have solely independent members. In addition, the Sarbanes-Oxley Act of 2002 has specific requirements related to the independence of audit committee members. These actions reflect the belief that audit committee composition can influence the nature of the oversight provided by the audit committee.

Recent actions by the SEC and the recommendations of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees (BRC) have highlighted the need for the audit committee to oversee and review all economic relationships between the external auditors and management. We examine the association between audit committee characteristics and one economic aspect of the auditor-management relationship, namely, audit fees.

Our analyses are based on audit fee data for 492 nonregulated, Big 5-audited firms that filed annual proxy statements with the SEC between February 5, 2001 and June 30, 2001. The results indicate that audit committee independence (defined as committees comprised solely of independent directors) and expertise (defined as committees that include at least one director with financial expertise per BRC recommendations) are significantly, positively associated with higher audit fees. …

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