The Effect of the Enron-Andersen Affair on Audit Pricing

Wuchun Chi
2004 Social Science Research Network  
This study examines whether and how the Enron-Andersen affair affected audit fees by investigating the sample before (years 2000 and 2001) and after (years 2002 and 2003) the occurrence of this prominent event in the U.S. audit market. The results show that, on average, audit fees have not only increased but that the fee premiums of the remaining Big 4 audit firms are also higher post-Enron. The fee-cutting phenomenon in an initial engagement is still applicable for former Andersen clients, who
more » ... dersen clients, who had to switch to a new auditor in the year 2002. However, among the clients of Big 4 auditors, the degree of fee-cutting is statistically greater for former Andersen's clients as compared to those for non-former Andersen's clients, ceteris paribus. The changed structure of audit pricing is not just a one shot reaction by the audit industry after the first year of the affair, but has lasted to the second year. Finally, post-Enron, I find evidence of higher fees for Big 4 industry specialists relative to non-specialist auditors, but this result only applies when the client is a small company.
doi:10.2139/ssrn.614884 fatcat:7nkwptrjbfe2jpfeuh47dqdr2q