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Audit Firm Assessments of Cyber-Security Risk: Evidence from Audit Fees and SEC Comment Letters

Author

Listed:
  • Pierangelo Rosati

    (Irish Institute of Digital Business, DCU Business School, Dublin City University, Collins Avenue, Glasnevin, Dublin 9, Ireland)

  • Fabian Gogolin

    (Leeds University, Business School, UK)

  • Theo Lynn

    (Irish Institute of Digital Business, DCU Business School, Ireland)

Abstract

This study investigates the impact of cyber-security incidents on audit fees. Using a sample of 5,687 firms, we find that (i) breached firms are charged 12% higher audit fees, and (ii) firms operating in the same industry of a breached firm are charged 5% higher fees. Finally, using a difference-in-difference regression on a propensity score matched sample, we provide evidence suggesting that auditors do not revise their audit risk assessment following a breach. Overall, these results suggest that the increase in audit fees in the year of a breach is only temporary, and that auditors include cyber-security risk in their audit risk assessment even before an incident occurs. Higher cyber-security risk is ultimately reflected in higher audit fees paid by auditees.

Suggested Citation

  • Pierangelo Rosati & Fabian Gogolin & Theo Lynn, 2019. "Audit Firm Assessments of Cyber-Security Risk: Evidence from Audit Fees and SEC Comment Letters," The International Journal of Accounting (TIJA), World Scientific Publishing Co. Pte. Ltd., vol. 54(03), pages 1-56, September.
    • Handle: RePEc:wsi:tijaxx:v:54:y:2019:i:03:n:s1094406019500136
    DOI: 10.1142/S1094406019500136
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    Citations

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    Cited by:

    1. Zhang, Yimei & Smith, Thomas, 2023. "The impact of customer firm data breaches on the audit fees of their suppliers," International Journal of Accounting Information Systems, Elsevier, vol. 50(C).
    2. Tran Nguen Bao Ngo & Andrea Tick, 2021. "Cyber-security risks assessment by external auditors," Interdisciplinary Description of Complex Systems - scientific journal, Croatian Interdisciplinary Society Provider Homepage: http://indecs.eu, vol. 19(3), pages 375-390.
    3. Asaad Mohammed Ali Wahhab & Baneen Hassoun Jawad & Emad Hamza Abd Alajeli, 2022. "Auditing cybersecurity risks considering the information renaissance and its impact on the continuity of companies," Technium Social Sciences Journal, Technium Science, vol. 35(1), pages 18-28, September.
    4. Alex Frino & Riccardo Palumbo & Pierangelo Rosati, 2023. "Does information asymmetry predict audit fees?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(2), pages 2597-2619, June.
    5. Masoud, Najeb & Al-Utaibi, Ghassan, 2022. "The determinants of cybersecurity risk disclosure in firms’ financial reporting: Empirical evidence," Research in Economics, Elsevier, vol. 76(2), pages 131-140.
    6. repec:zna:indecs:v:19:y:2021:i:4:p:375-390 is not listed on IDEAS

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