Factors associated with the early adoption of the SEC's revised auditor fee disclosure rules

Corporate disclosures of auditor fees (beginning in February 2001) caused considerable concern among regulators and investors about auditor independence because they revealed that nonaudit fees were a substantial proportion of total auditor fees. However, in 2003 the Securities and Exchange Commission (SEC) introduced revised disclosure requirements, specifying a broader definition of audit fees, and additional fee categories (SEC 2003). About 31 percent of our sample firms adopted the new rules in advance of the required date. We investigate the pattern of early adoption of the new fee disclosure rules by companies. Our results indicate that companies with greater nonaudit fee ratios during the prior year, companies that could show a greater decline in nonaudit fee ratios due to reclassification under SEC (2003), and companies that had greater audit-related fees after the reclassification were likely to adopt the new rules early. We conjecture that companies that had the most to gain from reclassifying fees-possibly by reducing negative investor perceptions about nonaudit services-adopted the new rules earlier than required.