Enterprise Risk Management and the effect on Audit Fees

Abstract

Enterprise Risk Management (ERM) has introduced a paradigm shift in the way companies manage risk. Academics and practitioners alike are becoming increasingly interested in ERM, yet the impact of ERM system quality remains unclear. This study aims to evaluate how the quality of ERM can impact the amount of audit fees paid by companies. We used panel data and a model with fixed effects to construct a sample that includes 137 U.S. firms from 2014 through 2020. Contrary to the expectations, a significant positive relationship is shown between ERM quality and audit fees, demonstrating that companies with higher ERM quality demand a higher audit quality, leading to an increase in audit fees.