Accrual reversals and audit fees: the role of abnormal audit fees

This study examines whether abnormal audit fees impair auditor independence or reflect auditors' efforts by using accruals reversal. All accruals must ultimately reverse, but those reversals have different effects on earnings persistence. Management may communicate the private information by different kinds of accruals. Therefore, auditors that have inside information should be able to identify managers who use their reporting discretion accruals to signal private information to investors. Our results suggest that normal audit fees reflect audit effort to identify different kinds of accruals reversal, but positive abnormal audit fees impair audit quality.