An Empirical Study on the Relationship Between Audit Quality and Abnormal Audit Fees
Date Issued
2007
Date
2007
Author(s)
Chen, Li-Ju
DOI
zh-TW
Abstract
This paper examines whether, and how, audit quality proxied by absolute value of discretionary accruals is associated with the abnormal audit fees, i.e., the difference between actual audit fees and expected fees.
Using a sample of 406 firm-year observations over the period of 2002-2005, the results of various regressions reveal that the association between the two is insignificantly positive for the subsample of clients with positive abnormal fees.For the result of subsample of clients with positive abnormal fees, it is consistent with the viewpoints of reputational capital (DeFond et al., 2002). However, the positive abnormal audit fee may not exactly represent the economic dependency effect between auditors and clients. The statistical insignificance may be attributed to constraints of model of normal audit fees.
Also, as evidenced by the regression results of subsample of clients with negative abnormal fees, different results are observed under different methods in estimating the level of abnormal audit fee. With subsample separated by transaction market, stock exchange or over the counter, the association between the absolute value of discretionary accruals and abnormal audit fees is significantly negative. However, with subsample separated by industry, the association between the two is insignificantly negative. Besides, similar insignificant results are found with overall sample. The different statistical outputs are resulted from the available samples which were restricted by present regulations. Therefore, we conclude that the empirical results are not robust enough to infer how the audit quality is affected by negative abnormal audit fee in auditing market of Taiwan.
Collectively, because the influence of negative abnormal audit fees is greater than positive ones, the association between the abnormal audit fee and audit quality is significantly negative for the full sample.
Subjects
異常審計公費
裁決性應計數
審計品質
abnormal audit fees
discretionary accruals
audit quality
auditor independence
Type
other
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