Title: Compare the effect of Sarbanes-Oxley on audit pricing: application of partial adjustment model

Authors: Meng-Chun Kao; Bang-Han Chiu

Addresses: Department of Finance, Yuanpei University, No. 306, Yuanpei St., Hsin Chu 30015, Taiwan ' Department of Finance, Yuan-Ze University, No. 135, Far-East Rd., Chung-Li, Taoyuan, Taiwan

Abstract: This study investigates whether audit pricing has changed following the passage of the Sarbanes-Oxley Act of 2002 (SOX). A partial adjustment model has been developed and employed to examine and characterised the rigidity of audit fees and the effect of SOX on audit pricing. The data is collected from Compustat and Audit Analytics databases. The panel data sample consists of 8,120 US publicly-listed firms for the period of 2000-2007. The empirical results document that audit fees increase significantly in the post-SOX period. Auditors could adjust audit fees to remain consistent with auditors' expectations more closely in the post-SOX period than in the pre-SOX period. The findings suggest that auditors have more bargaining power in post-SOX period that could be attributable to audit environment change. Finally, several robustness tests are performed to explore the differences of the determinants of audit fees before and after the advent of SOX.

Keywords: Sarbanes-Oxley Act; SOX; audit pricing; partial adjustment model; audit fees; auditing.

DOI: 10.1504/IJCA.2013.058689

International Journal of Critical Accounting, 2013 Vol.5 No.5, pp.469 - 484

Published online: 29 Apr 2014 *

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