Excess audit committee compensation and audit pricing

Abstract

In this study, we explore audit pricing decisions in the presence of excess audit committee compensation. Specifically, we examine whether excess compensation of audit committee members is related to audit fees. We find that excess compensation is positively associated with audit fees. We further examine whether the excess compensation affects auditors' pricing of earnings manipulation, and find evidence suggesting that auditors perceive earnings manipulation risk relatively low when the audit committee members are paid excess compensation. Overall, our results support the notion that audit committee excess compensation represents greater monitoring over a firm's financial reporting process, which affects auditor's risk assessment.