Review of Accounting Studies

, Volume 19, Issue 1, pp 210–241 | Cite as

Fair value and audit fees

  • Igor Goncharov
  • Edward J. Riedl
  • Thorsten Sellhorn


This paper investigates the effect of fair value reporting and its attributes on audit fees. We use as our primary sample the European real estate industry around mandatory IFRS adoption (under which reporting of property fair values becomes compulsory), due to its unique operating and reporting characteristics. We document lower audit fees for firms reporting property assets at fair value relative to those employing depreciated cost—a difference that appears driven, in part, by impairment tests that occur only under depreciated cost. We further find that audit fees are decreasing in firms’ exposure to fair value and increasing both in the complexity of the fair value estimation and for recognition (versus only disclosure) of fair values. We corroborate our findings in two alternative settings: contrasting UK and US real estate firms and using UK investment trusts. Overall, the results suggest that fair values can lead to lower monitoring costs; however, any reductions in audit fees will vary with salient characteristics of the fair value reporting, including the difficulty to measure and the treatment within the financial statements.


Fair value Audit fees Audit pricing Real estate industry IFRS 

JEL Classification

M41 M42 L85 


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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • Igor Goncharov
    • 1
  • Edward J. Riedl
    • 2
  • Thorsten Sellhorn
    • 1
  1. 1.WHU – Otto Beisheim School of ManagementVallendarGermany
  2. 2.Boston UniversityBostonUSA

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