What is it about?
This research examines whether successor auditors discount audit fees and provide poor audit services using data from China, where the identity of audit partners is publicly available. We find that audit fees are lower when the audit firm and the two engagement audit partners are replaced at the same time. Importantly, we find that such audit fee discounting leads to low audit quality.
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Why is it important?
Audit fee discounting (lowballing) is an important issue. Regulators concern that auditors may attract clients by price competition, which reduces auditor independence and deteriorates audit quality. Our research shows that individual audit partners play an important role in audit pricing for initial audit engagements. Specifically, audit fee discounting is more likely when both audit firm and audit partners are replaced at the same time. Importantly, we demonstrate how audit fee discounting in initial audit engagements is linked to audit quality.
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This page is a summary of: Fee Discounting and Audit Quality Following Audit Firm and Audit Partner Changes: Chinese Evidence, The Accounting Review, October 2014, American Accounting Association, DOI: 10.2308/accr-50958.
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