Bank Audit Fees and Asset Securitization Risks

Abstract

Asset securitizations increase audit complexity and audit risks, which are expected to increase audit fees. Using US bank holding company data from 2003 to 2011, we find significant and positive associations between asset securitization risks and audit fees. After the commencement of the global financial crisis (GFC), there was an increased focus on the role of audits on asset securitization risks resulting from the crisis in the banking industry. Therefore, we expect that auditors would become more sensitive to banks’ asset securitization risks after the commencement of the global financial crisis. We find that auditors appear to focus on different aspects of asset securitization risks after the onset of the crisis and that auditors appear to charge a GFC premium for banks.