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Title: Do corporate pension plans affect audit pricing?
Authors: Chen, Y 
Ge, R 
Zolotoy, L
Keywords: Audit effort
Audit pricing
Audit risk
Earnings management
Pension plans
Issue Date: 2017
Publisher: Elsevier Ltd
Source: Journal of contemporary accounting and economics, 2017, v. 13, no. 3, p. 322-337 How to cite?
Journal: Journal of contemporary accounting and economics 
Abstract: We examine whether corporate pension plans of client firms (hereafter, clients) influence auditors’ decisions on audit pricing for the clients in the U.S. We find that, on average, auditors charge higher fees for auditing financial statements of client firms sponsoring defined benefits (DB) pension plans than matched firms without DB pension plans. Moreover, we find that the effect of DB pension plans on audit fees is stronger when clients’ earnings are more sensitive to DB pension estimates, or when managers’ compensation induces more risk taking. Finally, we find that the additional audit fees charged for clients with DB pension plans are negatively associated with the extent of manipulations of DB pension accounting estimates. Collectively, our findings suggest that auditors consider managers’ incentive to manipulate earnings and increase audit effort to reduce audit risk associated with DB pension accounting, which results in higher audit fees.
ISSN: 1815-5669
DOI: 10.1016/j.jcae.2017.10.002
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