Economic policy uncertainty and audit effort: evidence from audit hours

Yun, Yongsuk; Chun, Hongmin

doi:10.1108/maj-08-2020-2808

Cited by 12 publications

(3 citation statements)

References 42 publications

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“…Another strand of research has explored the external economic or legal factors on audit quality and audit fees. Yun and Chun (2021) show that auditors work more audit hours in response to economic policy uncertainty. Gong et al (2022) find a negative effect of COVID-19 on audit quality.…”

Section: Introductionmentioning

confidence: 93%

The impact of capital-market liberalization on audit reporting and pricing: evidence from a quasi-experiment

Jiang

et al. 2023

MAJ

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Purpose The purpose of this study is to investigate the effects of capital market liberalization on audit reporting and pricing. The authors use the announcement of the Shanghai-Hong Kong Stock Connect program in China as a shock to capital market liberalization. Design/methodology/approach The authors use the difference-in-differences method to study the difference in changes in the frequency of modified audit opinions and audit fees between the treatment group and the control group. Findings This study finds that capital market liberalization increases reputational and litigation risks for auditors and leads to more conservative audit reports. In addition, capital market liberalization stimulates the management of eligible firms to improve the information environment, helps to reduce information asymmetry and decreases audit fees. Specifically, the authors identify the channels of active foreign institutional investors as a new governance mechanism through which capital market liberalization impacts eligible firm and auditor decisions. Research limitations/implications This study complements the literature by showing that capital market liberalization may bring a new and strong governance mechanism for eligible firms and auditors. Practical implications This study may provide new references for active foreign institutional shareholders as a new and strong governance mechanism in weak institutional regimes such as China, auditors’ optimization decisions when litigation risks increase and management’s improvements in the information environment under the monitoring of foreign institutional shareholders. Originality/value Overall, this study contributes to the literature by showing that capital market liberalization can bring a new governance mechanism for the management of eligible firms and auditors in a weak institutional environment. Foreign institutional shareholders may be superior to the domestic market forces and other corporate governance in the role of monitoring the management of eligible firms and auditors.

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Section: Introductionmentioning

confidence: 93%

The impact of capital-market liberalization on audit reporting and pricing: evidence from a quasi-experiment

Jiang

et al. 2023

MAJ

View full text Add to dashboard Cite

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“…Existing literatures suggest that economic policy uncertainty exposes firms to greater risk, raises the cost of corporate finance and reduces the availability of credit resources [ 44 , 45 ]. Economic policy uncertainty increases information asymmetry between auditors and clients, which in turn increases audit risk and audit fees [ 46 ]. International network members usually have a higher reputation and therefore suffer more serious losses in the event of an audit failure.…”

Section: Further Analysismentioning

confidence: 99%

International accounting network memberships and audit fees: Evidence from China

Xiong,

Zheng,

Liu

et al. 2024

PLoS ONE

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This paper investigates the international accounting network memberships’ impact on audit fees. We find that, firstly, the audit fees charged by the member audit firms are significantly higher; secondly, if the revenue, ranking or audit and accounting business share of the international network the audit firm join is higher, the charge is also higher. Additional results show that economic policy uncertainty will intensify this positive relationship, and member audit firms charge higher fees by improving their overseas expertise. We also find that international network memberships will reduce abnormal audit fees, and improve the quality of financial reports.

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“…It is found that firms with internal control deficiencies tend to have lower-quality financial reports (Foster et al, 2007) and are more likely to have major misstatements or irregularities and engage in earnings management (Kinney, 2007;Lenard et al, 2016). To deal with the earnings manipulation, auditors work more audit hours to reduce firms' audit risk to an acceptable level (Yun and Chun, 2021). Therefore, when a firm violates environmental regulations, or has been punished for environmental violations, auditors are more sensitive to the increased risks of firms with internal control defects than to those of firms without internal control defects.…”

Section: Environmental Violations In Chinamentioning

confidence: 99%

Do clients’ environmental risks affect audit pricing? Evidence from environmental violations in China

Yao

Wei²,

Chen³

2023

MAJ

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Purpose Existing studies have shown that all kinds of audit risks greatly affect audit pricing for accounting firms. However, it is still unclear whether environmental risks caused by environmental violations lead to a high audit fee. This study aims to investigate whether accounting firms raise audit fees after client firms have violated environmental regulations or have been punished for such violations. Design/methodology/approach This study selects listed firms with environmental violations between 1994 and 2018 as the treatment sample and match the treatment group with a control group of firms from the same industry, of similar asset size and with no environmental violations for the same time period. Then, this study constructs a difference-in-difference (DID) model to explore the impact of firm environmental violations (or punishment for environmental violations) on the audit pricing. Findings This study finds that accounting firms tend to raise audit fees after client firms have violated environmental regulations or have been punished for such violations, and this increasing effect is different due to environmental regulation intensity, regional span and internal control defects. Further evidences show that environmental violations influence audit fees through financial restatement, whereas environmental punishments impact audit fees through earnings management and risk-taking. Originality/value This study enriches the literature on determining factors of audit fees and economic consequences of environmental violations and provides empirical supports to understand the pricing behavior of accounting firms.

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Economic policy uncertainty and audit effort: evidence from audit hours

Cited by 12 publications

References 42 publications

The impact of capital-market liberalization on audit reporting and pricing: evidence from a quasi-experiment

The impact of capital-market liberalization on audit reporting and pricing: evidence from a quasi-experiment

International accounting network memberships and audit fees: Evidence from China

Do clients’ environmental risks affect audit pricing? Evidence from environmental violations in China

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