Abnormal Audit fees, Audit quality, and the Value Relevance of Accounting Information

Abstract

The current PhD thesis studies two empirical issues. Firstly, the thesis examines the relationship between abnormal audit fees and audit quality. Secondly, the thesis studies the relationship between abnormal audit fees and the value relevance of accounting information. To investigate these two issues, the current thesis measures abnormal audit fees using the residual of the audit fees model. Two measurements of audit quality are used: the magnitude and sign of discretionary accruals, as well as the accrual quality. The current thesis measures the value relevance of accounting information using the well-known Ohlson (1995) model. The study’s sample includes all companies listed on the London Stock Exchange (LSE) between 2010 and 2019. The current thesis finds that abnormal audit fees do not impact audit quality but do affect the value relevance of accounting information. Due to the asymmetric effects of positive and negative abnormal audit fees, further analysis indicates that only positive abnormal audit fees reduce audit quality, a finding that remains consistent across different measures of audit quality and after controlling for audit market competition. Additionally, positive abnormal audit fees increase the value relevance of accounting information, but this positive effect is reversed when non-audit fees are introduced as a moderating factor. These findings are of potential interest to related literature, practitioners of the audit profession, policymakers, and the market participants.