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Internal control deficiencies and audit pricing: evidence from initial public offerings

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  • Jong Eun Lee

Abstract

Prior evidence on the association between internal control deficiencies and audit fees pertains to public companies. In this study, I investigate the association between internal control deficiencies identified in initial public offering (IPO) audits and audit fees, as well as which factors drive the association. I find that IPO firms with internal control deficiencies regarding pre‐IPO financial reporting are likely to pay higher IPO audit fees, which suggests that auditors adjust audit fees for the increased internal control risk. In addition, I find that the fees are positively and significantly associated with the severity of the type of deficiencies.

Suggested Citation

  • Jong Eun Lee, 2018. "Internal control deficiencies and audit pricing: evidence from initial public offerings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(4), pages 1201-1229, December.
    • Handle: RePEc:bla:acctfi:v:58:y:2018:i:4:p:1201-1229
    DOI: 10.1111/acfi.12241
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    1. Jason Draho, 2004. "The IPO Decision," Books, Edward Elgar Publishing, number 3268.
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    Cited by:

    1. Oliver Henk, 2020. "Internal control through the lens of institutional work: a systematic literature review," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 31(3), pages 239-273, September.
    2. Huang, Pingping & Jiao, Yuehua & Li, Sihai, 2022. "Impact of internal control quality on the information content of social responsibility reports: A study based on text similarity—Evidence from China," International Journal of Accounting Information Systems, Elsevier, vol. 45(C).
    3. Du, Shuili & Xu, Xiaolu & Yu, Kun, 2020. "Does corporate social responsibility affect auditor-client contracting? Evidence from auditor selection and audit fees," Advances in accounting, Elsevier, vol. 51(C).
    4. Stewart Jones & Nurul Alam, 2019. "A machine learning analysis of citation impact among selected Pacific Basin journals," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(4), pages 2509-2552, December.

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