Much of the extant audit research focuses on the impact of excess audit fees paid to the auditors on earnings management. However, there is limited empirical evidence on whether auditors tolerate earnings management when audit fees are low, i.e., below the level of normal fees. Using a large...

We provide evidence that distinguishes between competing production cost-based explanations of how to interpret unusually high (or low) audit fees and their expected relation with accounting quality. Abnormally high or low fees are typically proxied by the residuals obtained from fee models....