Aligning off-balance sheet risk, on-balance sheet risk and audit fees: a PLS path modelling analysis

Zhang, Yuyu, Monroe, Gary, Gasbarro, Dominic, Cullen, Grant, & Shailer, Greg (2013) Aligning off-balance sheet risk, on-balance sheet risk and audit fees: a PLS path modelling analysis. In 25th Asian-Pacific Conference of International Accounting Issues, 10-13 November 2013, Grand Hyatt, Nuse Dua , Bali. (Unpublished)

Abstract

This study focuses on using the partial least squares (PLS) path modelling technique in archival auditing research by replicating the data and research questions from prior bank audit fee studies. PLS path modelling allows for inter-correlations among audit fee determinants by establishing latent constructs and multiple relationship paths in one simultaneous PLS path model. Endogeneity concerns about auditor choice can also be addressed with PLS path modelling. With a sample of US bank holding companies for the period 2003-2009, we examine the associations among on-balance sheet financial risks, off-balance sheet risks and audit fees, and also address the pervasive client size effect, and the effect of the self-selection of auditors. The results endorse the dominating effect of size on audit fees, both directly and indirectly via its impacts on other audit fee determinants. By simultaneously considering the self-selection of auditors, we still find audit fee premiums on Big N auditors, which is the second important factor on audit fee determination. On-balance-sheet financial risk measures in terms of capital adequacy, loan composition, earnings and asset quality performance have positive impacts on audit fees. After allowing for the positive influence of on-balance sheet financial risks and entity size on off-balance sheet risk, the off-balance sheet risk measure, SECRISK, is still positively associated with bank audit fees, both before and after the onset of the financial crisis. The consistent results from this study compared with prior literature provide supporting evidence and enhance confidence on the application of this new research technique in archival accounting studies.

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ID Code: 74326
Item Type: Conference Paper
Refereed: Yes
Additional URLs:
Subjects: Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > ACCOUNTING AUDITING AND ACCOUNTABILITY (150100) > Auditing and Accountability (150102)
Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > BANKING FINANCE AND INVESTMENT (150200) > Financial Institutions (incl. Banking) (150203)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Accountancy
Copyright Owner: Copyright 2013 The Author(s)
Deposited On: 24 Jul 2014 01:31
Last Modified: 23 Feb 2016 20:33

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