Education Requirements, Audit Fees, and Audit Quality

SUMMARY: We examine whether additional education requirements to enter the accounting profession lead to higher costs to clients. Using the 150-hour education requirement in the U.S. and the audit services market during the period 2000–2004 as the setting for our study, we find that corporations headquartered in states that have implemented the 150-hour requirement pay, on average, 4.8 percent more in audit fees than corporations in states that have not implemented the 150-hour requirement. Additionally, we find that audit fees increase as time passes after implementing additional education requirements. We also provide evidence that corporations headquartered in states with higher general wage levels pay higher audit fees. In supplementary analyses, we do not find an association between additional education requirements and differential quality of work product as measured by discretionary accruals.