Do Audit Fees Reflect Risk Premiums for Control Risk?

This study examines whether audit fees reflect risk premiums in the presence of control risk after controlling for audit effort through audit delay. Our results indicate that auditors adjust risk premiums as well as audit efforts in response to altered control risk. Further analysis shows that the extent of risk premium adjustment varies depending on the severity of the underlying internal control problems. Overall, these findings provide insights into the distinct role of audit effort and risk premium in audit pricing decisions.