Convertible Debt Usage and the Pricing of Audit Services

What is it about?

The findings in this study contribute to audit research in several ways. First, they extend prior audit fee and production literature by providing evidence that auditors go beyond debt levels and proportions, and incorporate in their risk assessment other debt characteristics such as the convertibility feature of a bond. Next, the study shows that convertible debt-related audit fees have increased during the PCAOB quasi-monitoring regime, possibly because of explicit guidance in AS 2110 about considering debt characteristics and higher cost of non-compliance with PCAOB regulation.

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