Conclusion
The economic downturn in the period from December of 2007 to June of 2009 is often referred to as the ‘‘Great Recession’’. The Recession imposed significant financial pressure on many companies. Regulators expressed concerns that audit fee pressure from clients might have had negative effects on audit quality during the Recession (PCAOB, 2010, 25–26). In this paper, we examine whether audit fee pressure during the Recession plays a role in misstatements of accounting information in 2008. This analysis provides evidence whether fee pressure affected audit quality in the stringent economic context of the Recession. Our results suggest that regulators’ concerns are warranted because clients that exerted fee pressure in 2008 are more likely to have accounting misstatements in 2008. The association between fee pressure and reduced audit quality appears to be restricted to the Recession because Fee Pressure is only marginally associated with misstatements in 2006, and the association is not signifi- cant in both 2007 and 2009. In additional analyses, we find no evidence suggesting that the impact of fee pressure differs for larger auditors and audit offices, or for larger clients. Moreover, our results seem to be driven by more severe misstatements (i.e. generating larger misstatement severity factor scores).
