Intangible assets on the balance sheet and audit fees

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This study empirically examines how auditors view intangible assets that are recorded on the balance sheet. Intangible assets have been rising on corporate balance sheets and are growing in importance. In contrast to tangible assets, intangible assets pose unique challenges to auditors in terms judgment and complexity. The study uses a sample of COMPUSTAT firms over the period 2010-2015. The results show that auditors charge higher fees for firms with higher proportion of intangible assets on the balance. This result holds for all intangible assets, goodwill type intangible assets, and intangible assets other than goodwill. For firms with high book to market ratios these results are stronger indicating that potential impairment concerns lead auditors to charge even higher fees for such firms. A variety of sensitivity tests are conducted to verify the robustness of the results. These results are of interest to investors, regulators, firm managers, corporate boards, and auditors.