Fair value disclosure of pension plan assets and audit fees

Effective December 2009, FAS 132(R)-1 expands the prior disclosure requirements on pension plan assets by requiring firms to disclose the fair value inputs and measurements of pension assets. This study examines whether the different level of pension asset fair value inputs required under FAS 132(R)-1 affects audit fees, and investigates whether more expanded fair value disclosure requirements alone can have any impact on audit fees that proxy for auditors' efforts. During our sample period from 2009 to 2010, we find supporting evidence that audit fees are an increasing function of Level 3 fair value assets that are more subjective. In addition, in a difference-in-difference test, we find evidence supporting our hypothesis that audit firms increase their audit fees after the adoption of FAS 132(R)-1, especially for the client firms that have more Level 3 pension assets. Considering that auditors have had access to the detailed fair value measurement information even before 2009, our results imply that a more detailed disclosure requirement on pension plan assets alone can affect auditors' audit efforts and audit fees accordingly.