Internal control deficiencies and audit pricing: evidence from initial public offerings

Prior evidence on the association between internal control deficiencies and audit fees pertains to public companies. In this study, I investigate the association between internal control deficiencies identified in initial public offering (IPO) audits and audit fees, as well as which factors drive the association. I find that IPO firms with internal control deficiencies regarding pre-IPO financial reporting are likely to pay higher IPO audit fees, which suggests that auditors adjust audit fees for the increased internal control risk. In addition, I find that the fees are positively and significantly associated with the severity of the type of deficiencies.