Initial evidence on the association between nonaudit fees and restated financial statements

The current study provides empirical evidence on the association between firms that restate financial statements and the nonaudit service fees received by incumbent auditors during reporting periods that required restatement. It identified a sample of 110 firms that restated financial statements previously filed with the SEC for fiscal years 2000 or 2001, and provided relevant audit and nonaudit fee data. The fees paid by the restatement sample are compared with fee data for 3,481 firms that filed proxies with the SEC from February 5, 2001 to August 31, 2001 and develop benchmarks for expected nonaudit fees, fee ratio, and total fees. Using these benchmarks, it calculated the unexpected values for these measures and investigated whether restatement firms differ from the control firms. The findings of no significant differences between the restatement and control samples for unexpected nonaudit fees, fee ratios, and total fees do not support concerns that either nonaudit fees or total fees inappropriately influence the audit and lead to restatements.