Do corporate pension plans affect audit pricing?

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)322-337
Journal / PublicationJournal of Contemporary Accounting and Economics
Issue number3
Online published26 Oct 2017
Publication statusPublished - Dec 2017
Externally publishedYes


We examine whether corporate pension plans of client firms (hereafter, clients) influence auditors’ decisions on audit pricing for the clients in the U.S. We find that, on average, auditors charge higher fees for auditing financial statements of client firms sponsoring defined benefits (DB) pension plans than matched firms without DB pension plans. Moreover, we find that the effect of DB pension plans on audit fees is stronger when clients’ earnings are more sensitive to DB pension estimates, or when managers’ compensation induces more risk taking. Finally, we find that the additional audit fees charged for clients with DB pension plans are negatively associated with the extent of manipulations of DB pension accounting estimates. Collectively, our findings suggest that auditors consider managers’ incentive to manipulate earnings and increase audit effort to reduce audit risk associated with DB pension accounting, which results in higher audit fees.

Research Area(s)

  • Pension plans, Audit pricing, Audit effort, Audit risk, Earnings management

Citation Format(s)