Bribes and audit fees

We examine how the UK Bribery Act 2010—a law aimed at discouraging corruption—affected auditors’ fees and perceived risks associated with client firms engaging in bribery. Adopting a triple-difference design, we find that those client firms subject to the act and operating in countries perceived as...

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Bibliographic Details
Published inJournal of accounting and public policy Vol. 49; p. 107277
Main Authors Hadjigavriel, Stavriana, Gutiérrez-Urtiaga, María, Gago-Rodríguez, Susana
Format Journal Article
LanguageEnglish
Published Elsevier Inc 01.01.2025
Subjects
Audit fees
Audit quality
Bribes
Corruption
UK Bribery Act 2010
Bribes
UK Bribery Act 2010
Corruption
M140
K420
M410
M420
Audit fees
M4
Audit quality
M480
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Summary:We examine how the UK Bribery Act 2010—a law aimed at discouraging corruption—affected auditors’ fees and perceived risks associated with client firms engaging in bribery. Adopting a triple-difference design, we find that those client firms subject to the act and operating in countries perceived as more corrupt pay higher audit fees following the enactment of the act, are more likely to change auditors, and are less likely to be audited by one of the Big 4 auditors. However, we observe no significant changes for subject client firms that operate in low-corruption environments. Moreover, the act has no impact on financial reporting quality across clients. Therefore, we conclude that the increase in audit fees after the passage of the act for client firms operating in high-corruption environments is the response of auditors to the higher potential litigation and reputation costs they face when engaging with clients who are more likely to engage in bribery.
ISSN:0278-4254
DOI:10.1016/j.jaccpubpol.2024.107277