A Study of Audit Delays as a Determinant of Audit Fees in the Post-SOX Period

This study examines whether audit report lag(ARL) measures a risk factor that auditors may consider in their determination of audit fees for the subsequent period audits. Audit delays may capture qualitative risks by measuring the quality of clientauditor interaction, while prior literature studying audit fees has heavily focused on quantitative risks. It is expected that the long interaction between managers and auditors before the audit is finished reflects higher risk, leading auditors to charge higher audit fees in the subsequent year. Empirical results strongly support the hypothesis that audit clients with high risk, measured by long ARL, have to pay higher audit fees in the following year. These findings are consistent with ARL measuring a risk factor auditors consider. Investors and audit committees would be interested in knowing that deterioration in the quality of client-auditor interaction implies a red flag, subsequently translating to higher audit fees.