| dc.description.abstract | In this study, we focus on the agency problem caused by CEO executive stock option and the choice of Big N auditors, non-audit fees and audit opinion. Corporate scandals result in the passage of Sarbanes-Oxley Act (SOX) in 2002 which significantly influence on auditing. SOX provisions expansion the role of the independent directors members, impose strict litigation liability on auditors, directors and officers, and requirements of internal control. Especially, SOX bans several non-audit services for audit clients because it is a threat to auditor independence. Therefore, we also partition the sample period to pre- and post-SOX periods to examine the SOX effect on auditor choice, non-audit fees, and audit opinions. The study uses a sample of U.S. public trading companies for the period 2000 to 2006. Prior researches suggest that when audit committee also sits on compensation committee, the financial reporting quality is better. We document that when firms without overlapping membership, CEO incentive pay is positive correlated with appointing of Big N auditors. Moreover, the positive effect of CEO incentive pay on non-audit fees is insignificant in the post-SOX period. Auditors become more conservative when providing non-audit services. Finally, we find that Big N auditors take their clients’ agency problems into consideration when making audit opinions decisions. To sum up, these results suggest that changes in overlapping, CEO incentive pay, and legal liability may have some effects on the selection of auditor and auditor behavior when a change is made.
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