@article{599c616f36fc44368f61d1ec8eb2c3a6,
title = "Unexpected fees and the prediction of material weaknesses in internal control over financial reporting",
abstract = "We investigate whether prior year unexpected audit fees help predict new material weaknesses in internal control over financial reporting reported under Section 404 of the Sarbanes-Oxley Act (SOX). Predicting material weaknesses may be useful to investors and other financial statement users because these disclosures have adverse economic impacts on disclosing firms. Unexpected fees are significantly associated with material weaknesses reported under Section 404, even after controlling for Section 302 disclosures and other factors associated with internal control weaknesses. Unexpected fees are associated with company-level weaknesses but are not significantly associated with account-specific weaknesses, consistent with differences in the nature and severity of the two types of material weaknesses. Our results are consistent with unexpected audit fees containing information on unobserved audit costs and client control risks, which help predict future internal control weaknesses.",
keywords = "Internal control weaknesses, Section 302, Section 404, Unexpected fees",
author = "Albring, {Susan M.} and Randal Elder and Xiaolu Xu",
note = "Funding Information: We thank the reviewer for helpful comments that substantially improved the article. We also thank Dan Dhaliwal, Inder Khurana, Raynolde Pereira, and participants at the 2013 American Accounting Association Audit Mid-Year meeting, the 2012 American Accounting Association Annual meeting and the Accounting and Finance workshop at University of Massachusetts, Boston for their helpful comments. The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: Susan Albring gratefully acknowledges funding from the Martin J. Whitman School of Management. Xiaolu Xu gratefully acknowledges research support and the purchase of Audit Analytics from the College of Management, University of Massachusetts Boston. Funding Information: The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: Susan Albring gratefully acknowledges funding from the Martin J. Whitman School of Management. Xiaolu Xu gratefully acknowledges research support and the purchase of Audit Analytics from the College of Management, University of Massachusetts Boston. Publisher Copyright: {\textcopyright} The Author(s) 2016.",
year = "2018",
month = jan,
day = "1",
doi = "10.1177/0148558X16662585",
language = "English (US)",
volume = "33",
pages = "485--505",
journal = "Journal of Accounting, Auditing and Finance",
issn = "0148-558X",
publisher = "Greenwood Publishing Group Inc.",
number = "4",
}