Fool’s Gold or Value for Money? The Link between Abnormal Audit Fees, Audit Firm Type, Fair Value Disclosures, and Market Valuation
International Journal of Auditing, Forthcoming
Posted: 25 Apr 2013 Last revised: 12 Jun 2023
Date Written: April 30, 2018
Abstract
We analyze whether the audit firm type and abnormal audit fees are associated with the market valuation of banks' fair‐value assets. Our results indicate that different auditor types use different strategies when auditing fair values. First, we show that Big 4 auditors restrict the Level 3 valuations to the most illiquid assets. Thus, those banks audited by a Big 4 auditor have a lower proportion of Level 3 assets. Second, the market discount on the Level 3 assets is higher for the banks audited by a Big 4 auditor than for those audited by a non‐Big 4 auditor. Third, the discount on the Level 3 portfolios of banks with non‐Big 4 auditors is higher if the unexpected audit fees are high. Thus, non‐Big 4 auditors seem to allow more high‐uncertainty valuations but charge a risk premium. We find similar effects for industry‐specialist auditors.
Keywords: Fair Value Accounting, Audit Fees, Audit Firm Size, Auditor Industry Specialization, Banks
JEL Classification: M41, M42, G21
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Marking to Market: Panacea or Pandora's Box?
By Guillaume Plantin, Haresh Sapra, ...
-
Mark-to-Market Accounting and Liquidity Pricing
By Franklin Allen and Elena Carletti
-
The Crisis of Fair Value Accounting: Making Sense of the Recent Debate
By Christian Laux and Christian Leuz
-
Did Fair-Value Accounting Contribute to the Financial Crisis?
By Christian Laux and Christian Leuz
-
Did Fair-Value Accounting Contribute to the Financial Crisis?
By Christian Laux and Christian Leuz
-
By Weitzu Chen, Chi-chun Liu, ...
-
By Chang Joon Song, Wayne B. Thomas, ...
-
Fair Value Accounting and Financial Stability
By Andrea Enria, Lorenzo Cappiello, ...
-
Do Investors Perceive Marking-to-Model as Marking-to-Myth? Early Evidence from FAS 157 Disclosure