Faculty Scholarship 1994 - Present

Restatement and Audit Risk

This study examines auditors? reaction on the announcement of restatements. We investigate how auditors change their assessment of audit risk after the detection of material misstatements which is announced as the form of restatement. We find that the audit fees in the post-restatement periods are significantly higher than that in the pre-restatement periods. Moreover, the higher audit fees last for at least three years after restatement announcements. In addition, the auditor turnover in the year following restatement is significantly higher than other years. Accordingly, the empirical results imply that auditors perceive a higher level of audit risk for restatement firms.