How would macroeconomic uncertainty affect audit pricing?

What is it about?

The paper examines the association between macroeconomic uncertainty and audit fees. Using the volatility index from the Chicago Board Option Exchange to proxy for macroeconomic uncertainty and a sample of US firms from 2002 to 2014, we document that macroeconomic uncertainty is negatively associated with audit fees and that fee reduction during periods of high uncertainty is more pronounced for firms appointing Big 4 and specialist auditors and for firms in a better financial position, consistent with the notions that market-wide uncertainties give firms more advantages over auditors in price negotiation and that the effect varies across auditor and client attributes. Further, macroeconomic uncertainty indirectly decreases audit quality through lower audit fees. Our study makes contributions to the literature as our study does not focus merely on the economic recession in 2008-2009 and attribute fee reduction to the recession. The findings also have implications for auditors and firms.

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Why is it important?

Our study makes contributions to the literature as our study does not focus merely on the economic recession in 2008-2009 and attribute fee reduction to the recession. The findings also have implications for auditors and firms.