Audit fees for initial audit engagements before and after sox

Hua Wei Huang, K. Raghunandan, Dasaratha Rama

Research output: Contribution to journalArticlepeer-review

88 Citations (Scopus)


Legislators, regulators, and the media have expressed concerns that auditors ''lowball'' the fees for initial-year audits and that such fee discounts can lead to reduced audit quality. We hypothesize that initial-year audit fee discounts will be less likely in the post-SOX period than in the pre-SOX period. Using both fee-levels and fee-changes models, we find that Big 4 clients receive initial-year audit fee discounts of about 24 percent in 2001; this finding is consistent with results from many prior studies that have examined various periods prior to SOX. However, we find that in 2005-2006 Big 4 clients pay an initial-year audit fee premium of around 16 percent. We also document that the Big 4 are much less likely to serve as a successor, following an auditor change, in 2005-2006 than in 2001. Overall, the findings suggest that concerns about initial-year audit fee discounts are not supported by empirical evidence in the post-SOX period. The results also suggest that the Big 4 have become more conservative in the post-SOX period with respect to client acceptance and pricing decisions.

Original languageEnglish
Pages (from-to)171-190
Number of pages20
Issue number1
Publication statusPublished - 2009 May

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics


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