دانلود رایگان مقاله انگلیسی آزمون تجربی اجرای SEC در بازار حسابرسی - الزویر 2017

Abstract

This paper provides evidence that the Securities and Exchange Commission’s (SEC’s) enforcement policies affect audit pricing. Firms with a higher probability of enforcement by the SEC are hypothesized to experience increased pricing of audit services. According to Kedia and Rajgopal (2011), geographical proximity to SEC’s offices can serve as a proxy of enforcement probability. The hypothesis of the current paper is supported by the findings that audit firms charge companies with a higher enforcement probability significantly higher audit fees. Thus, audit pricing increases when auditors perceive an enhanced audit risk for firms with greater prominence on the SEC’s radar. Therefore, one can infer that the probability of SEC enforcement increases the need for shareholders to bear the costs of monitoring agents and that enforcement and audit provision are complementary devices.

6. Conclusions

The SEC plays a vital role in safeguarding the credibility of financial reporting. This oversight board’s investigatory role constitutes an essential institutional mechanism that reduces accounting irregularities and enhances accountability and transparency in financial reporting. However, SEC enforcement activity is subject to a shortage of budgetary and time resources. Prior literature has established that SEC enforcement activity follows a fairly well-established pattern: the SEC is more likely to investigate firms that are headquartered closer to its offices, a policy that allocates the commission’s limited resources more efficiently (Kedia & Rajgopal, 2011). Against this background, this paper examines whether the SEC’s enforcement pattern affects audit fees, the level of which is often related to the quality of financial reporting and therefore interests a wide range of market participants. On the basis of the findings, this paper argues that auditors factor SEC activity into their risk-assessment analyses. In particular, auditors understand that geographical proximity to the oversight board’s offices entails a higher engagement risk, and they therefore charge higher fees to firms headquartered closer to SEC offices. Thus, auditors employ a pricing policy that reflects their increased effort to minimize the likelihood of misreporting, which would in turn expose the auditor to an SEC investigation.