What is it about?
This research examines whether audit market concentration affects audit fees and audit quality in China, where competition among auditors is intense due to the large number of audit firms. We find that audit fees are higher when audit market concentration is higher. Path analysis shows that such increased audit fees due to audit market concentration further improve audit quality.
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Why is it important?
Globally, there is a concern on whether a shortage of choices affects audit pricing and audit quality. We provide evidence from China where the dominance of Big 4 auditors is lower. Importantly, we use path analysis and show that audit market concentration has direct and indirect effects on audit quality. By separating the direct and the indirect effect of concentration on audit quality, our research would explain why previous studies that do not have a separation document mixed evidence.
Perspectives
Audit market concentration is a very important issue. It is interesting and meaningful to examine this issue by using data from different countries, as the effect of audit market concentration could be different in different countries.
Ting-Chiao Huang
Monash University
Read the Original
This page is a summary of: Audit Market Concentration, Audit Fees, and Audit Quality: Evidence from China, Auditing A Journal of Practice & Theory, May 2016, American Accounting Association,
DOI: 10.2308/ajpt-51299.
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