Correlation Between Audit Consultancy Fees and Audit Quality

Abstract

Since the advent of Sarbanes-Oxley, there has been emphasis on financial information disclosure and a call for changes in the internal and external audit process. A call in the professional societies for the ban of non-audit functions by audit firms has been debated in conference sessions and professional society publications.

The issues this paper addresses include: audit relationships between consultancy firms and clients; purchased influence in terms of audit firm retention or dismissal; Big 5 Audit firms retention as a form of insurance; is there a correlation between the audit process and what stocks are worth. This has led to concept that there is no correlation between audit consultancy fees and audit quality. The intent of the SEC regulations is to communicate the audit relationship to the board, stock holders, and interested parties. The system is working and would stronger SEC regulations provide more open communications between the board and the investment community? The literature does not support that contention, and suggests that the current system of checks and balances is finely tuned to produce accurate and detailed reporting.

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