Audit fee and audit opinion researches:Evidence from China
Date Issued
2009
Date
2009
Author(s)
Lin, Hsiao Lun
Abstract
China has been one of the largest and fastest growing economies in the world. Since high quality auditing will contribute to the financial market, more and more studies recognize the importance of the auditing profession. There are some special characteristics of audit market in China. These characteristics include, (1) Big 4 auditors are not the largest auditors, (2) neither Big4 auditors nor other audit firms have taken a leading position in public audit market, and (3) in some provinces, there exist some local audit firm monopolized audit market. Such a special audit market provides an opportunity to conduct a comprehensive analysis of the audit fee and audit opinion shopping theory. The first section of the dissertation introduces the research motivation and the general background of the Chinese audit market. The second part of the dissertation examines the determinants of audit fees in China. In the part, the research focuses on whether audit pricing is affected by auditor size, auditor brand name reputation, and market competition individually. Based on the data from Shanghai and Shenzhen stock exchanges from 2002 to 2007, this study finds that larger auditors (measured by assets audited by audit firm and total revenues of the audit firm) tend to charge higher audit fees. The results also indicate that the brand name fee premium exists both in Big 4 auditors and auditors who affiliate with other international accounting firms. Furthermore, this study finds that the regional leading auditors can earn fee premium. At last, the analysis shows that first, auditors charge lower audit fees to state-owned clients, and second, Big4 relatively offer more discount in order to earn more business potential in the future. The final section of the dissertation talks about the audit opinion shopping behavior in China. Previous researches found that getting qualified opinion is the main reason cause auditor changes; however, none of them did further analysis about what factors affect the companies who get qualified opinions and decides to change auditors. Based on the observations from 2001 to 2007 in China, this dissertation finds that companies who get going concern opinion or qualified opinion form big4 or big10 auditors, or companies whose auditor are qualified more than one item in audit report last year, would prefer change their auditors in the next year. The results support the presumption that the probability of successful opinion shopping will affect manager’s decision about auditor change. This dissertation finds that when the company is investigated by the CSRC (China Securities Regulatory Commission), its engagement auditor will not issue the favor opinion. The research also finds that some companies try to get favor opinions by changing auditors constantly. The result of the empirical research might help to supervise and maintain the financial and audit market.
Subjects
Audit fee
Auditor size
Brand name reputation
State-owned enterprise
Opinion Shopping
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