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The Impact of Credit Rating on Audit Fees
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Auditors will assess the client''s risk to determine audit fees , and planning the audit process , this study investigates whether the association between customer''s credit rating and audit fee. The worse the client''s credit rating, the higher the client''s default risk, auditors will raise audit fees in order to reduce the risk of litigation costs. We examine the audit fees paid to auditors around the Sarbanes-Oxley Act. Audit fees are expected to increase after SOX due to potentially increased auditors' legal liability, SOX made auditor assess the client's risk more cautiously. In this study, we use simultaneous equations to examine the relationship between credit ratings and audit fees. Our results indicate that overall credit rating is significantly positive correlation for the audit fees, that also represented the worse the credit rating companies, whose audit fee will be higher.
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