The effects of time pressure on audit fees

Abstract

This study investigates whether time pressure on the audit increases the cost of professional audit services. From 2003 to 2006, filing deadlines were shortened for accelerated filers (AFs) and large accelerated filers (LAFs) by 15 and 30 days, respectively, under the SEC's accelerated filing regulation. Time-pressure engagements are identified as those whose audit report dates in the year prior to implementation fell after the new deadlines. Comparing time-pressure AFs to control engagements, findings show no significant difference in audit fee adjustments during implementation. Looking at time-pressure LAFs, findings show evidence of fee decreases. Findings counter common criticism of the regulation and suggest available slack, where significant additional audit effort was not required to meet the new deadlines. Evidence points to resource transfers to (from) time-pressure (control) engagements during the first acceleration, and increasing reliance on internal controls of time-pressure LAFs during the second acceleration, as strategies used by auditors. Additional analyses document decreases to audit quality on time-pressure AFs but maintained quality on time-pressure LAFs.