Investment-related pressure and audit risk

SUMMARY: This study examines whether auditors regard market pressure on client management as contributing to audit risk. The literature suggests that when management jobs are threatened by negative market reaction to poor mergers and acquisitions investment, managers are more likely to misstate financial statements in the post-investment period due to pressure on their job security (Bens, Goodman, and Neamtiu 2012). We find that firms under such investment-related pressure experience larger increases in audit fees and audit lags in the post-investment period. Our findings suggest that auditors perceive market pressure on client management as a risk factor, as recommended by Statement on Auditing Standards (SAS) No. 99.