Authors: Maria Kyriakou, Augustinos Dimitras

Title: Audit Fees and Audit Quality during financial crisis

Abstract

The paper aims to examine the relationship between audit fees and audit quality during financial crisis. Recessions are associated with a general slowdown in economic activity leading to a lower Gross Domestic Product (GDP). In this study, we use the growth of GDP as a proxy for financial crisis and the discretionary accruals as a proxy for audit quality. The analysis is focused on German, French, Italian and Spanish companies and the period of study is 2007-2013.

The findings between audit fees and audit quality are mixed. On the one side, the results of the study indicate that there is a positive and statistically significant relation between audit fees and discretionary accruals, suggesting lower audit quality and lack of auditor independence. On the other side, we find that there is a negative and statistically significant relation between audit fees and discretionary accruals, indicating both higher audit quality and auditor independence.

The results provide evidence for both managers and investors.