An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Arthur Allen
University of Nebraska

Angela M. Woodland
Louisiana State University

Abstract: This study examines the effect of wages and the 150-hour education requirement on audit fees. Proponents argue that additional education produces higher quality students who are better prepared for accounting careers and the CPA examination. Opponents of the 150-hour requirement argue it imposes opportunity costs on students and restricts the supply of potential audit staff, resulting in higher labor costs and ultimately higher audit fees. This is the first study to document higher audit fees for audits performed in states with higher wages. After controlling for likely audit fee determinants including state wage differences, we find evidence that audit fees are higher in states implementing the 150-hour requirement and that the length of time after implementation is associated with higher audit fees. These results are consistent with higher labor costs associated with a growing shortage of audit staff that starts with the implementation of the 150-hour requirement.

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