Abstract
We investigate whether audit fees are shaped by litigious tone. Using a sample of listed firms in the US, we find litigious tone in 10-K reports is associated with higher audit fees. This finding remains robust when we account for sample selection bias, firm-level unobserved heterogeneity effects, endogeneity concerns, or when subsections in 10-K reports are analysed. In addition, we document the relationship is of a lower magnitude among high-risk client firms, suggesting that auditors are already cautious when auditing high-risk clients. This suggests that auditors rely less on litigious tone in determining audit fees when faced with high-risk clients.
Original language | English |
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Pages (from-to) | 1715-1760 |
Number of pages | 46 |
Journal | Accounting & Finance |
Volume | 62 |
Issue number | S1 |
DOIs | |
Publication status | Published - Apr 2022 |