Audit Fees and Audit Risk – Evidence from German Speaking Countries

Abstract

The objective of this paper is to examine the risk-related premiums of disclosed audit fees in the Austrian and German markets for audit services. The idea of the paper is to determine a risk-free, entity-specific audit fee. By comparing this fee with the disclosed audit fee, we determine risk-related audit fee premiums. In contrast to the previous studies that measured audit risk, we develop an alternative approach based on the differences in volatility of taxable income and GAAP-defined income with respect to earnings management. The results indicate that no relationship between systematic risk and adequate audit fee pricing exists.