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Tax Law

Dodd-Frank and Oil & Gas Audit Fees

by Max Choi, Dr. Rudolph Jacob and Dr. Susanne O'Callaghan *

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), was passed in response to the financial crisis of 2007-2009. The purpose of this exploratory study is to examine whether the Dodd-Frank Act resulted in significantly different audit fees for the largest thirty publicly traded oil and gas companies based in the United States. Our results indicate that there has not been a significant difference in audit fees for the largest oil and gas companies from pre 2010 to post 2011, due to this Act.

Like other major financial reform legislation that came before it, the Dodd-Frank Act was passed and signed into law in the aftermath of a financial crisis, the Great Recession of 2007-2009.

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Past research indicates that an increase in regulatory complexity causes a difference in audit fees. In 2014, a Financial Executive International survey revealed that public companies paid 4.5% over the audit fees paid in 2013 (Financial Executives 2014). This increase was primarily due to the review of manual controls resulting from the Public Company Accounting Oversight Board inspections mandated by the Sarbanes-Oxley Act of 2002 (Financial Executives 2014). Research conducted at the University of Oklahoma showed a positive and significant relationship between the external auditors' fees and the regulatory environment (Gist, 1992). The Dodd-Frank Act also seemed poised to cause a significant increase in audit fees incurred by public companies.
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Our research results indicate that there has not been a significant increase in audit fees before Year 2010 and after Year 2011 the passage of the Dodd-Frank Act in the energy sector. Furthermore, the thirteen decreases in audit fees in Appendix C seem to provide support for our findings.

Out of the 30 sample firms, 13 companies experienced a decrease in audit fees since the passage of the Dodd-Frank Act. The research results found by the Financial Executives International, that indicated an increase of 4.5% in audit fees, may have been due to the increased audit work mandated by the Sarbanes-Oxley Act in the compliance and testing of internal controls.
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* The authors are respectively internal audit and budgeting intern at Towson College, Professor at Pace University, Lubin School of Business, and Professor at Pace University, Lubin School of Business.

Information referenced herein is provided for educational purposes only. For legal advice applicable to the facts of your particular situation, you should obtain the services of a qualified attorney licensed to practice law in your state. 

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