1. Corporate Governance and Financial Reporting Research Discussion of “Short-Term Debt Maturity Structures, Credit Ratings, and the Pricing of Audit Services” by Gul and Goodwin (2010) TAR 1

2. Purpose of the Paper To investigate whether short-term debt and credit ratings benefit financial reporting quality and in turn lead to lower audit fees. 2

3. Motivation & Contribution I. Motivation: monitoring role of short-term debt in finance; ratings and liquidity risk/corporate governance on auditor’s risk assessment; criticisms of ratings. II. Contribution: provide evidence to understand how auditors react to different levels of short-term debt and ratings; 3

4. Sample Data and Method I. Sample Data: 9,632 US non-financial firms 2003-2006. II. Regression model is used: Audit Fees = controls + Short-debt + Rating AFee = natural logarithm of audit fee; Debt3 = proportion of debt maturing within three years after the fiscal year-end; Rating =1 for the lowest quality Standard & Poor’s rating through to 21 for the highest quality Standard & Poor’s rating; 4

5. Results/Conclusion T6: Short-debt and Rating are negatively significant to audit fees; T7: Debt3*Rating is positively significant -means the negative relation between audit fees and Debt3 is weaker for higher-rated firms; T8: Using dummy rating and including governance variables – financial expert is negatively significant, other results continue to hold; 5

6. Extension I. Audit quality and Debt3/Rating; II. Auditor change and (changes in) Debt3/Rating. III. Finance firms; IV. Local applications. 6