Do the Differences of Auditor' Organizational Form and Transformation Affect Audit Fees?

Abstract

Abstract:

Many audit firms have transformed from limited liability into special general partnership after 2010 when the government promulgated the Interim Provisions on Driving Large and Medium-sized Audit firms to Transform into Special General Partnership Organizational Form. Will the difference of auditors' organization form and transformation affect audit risk or audit fees? It is a significant topic in both academic and practical researches. This study finds that the audit fees charged by partnership CPA firms are higher than those charged by limited liability CPA firms after controlling for the characteristics of CPA firms and their clients, as well as correcting for the selection bias. Further investigation demonstrates that the fee premium charged by partnership CPA firms becomes higher for firms in financial distress so that to compensate for higher potential risk in auditing. In addition, we find that audit firms charge higher audit fees after their organizational form is transformed from limited liability to special general partnership following the regulation issued by China's Treasury in 2010 which encourages the transformation, but there is no evidence that the transformation helps improve the audit quality.

Key words: organizational form, audit fees, audit risk, special general partnership

Wang Xiao, Gao Jie, Lu Qiang. Do the Differences of Auditor' Organizational Form and Transformation Affect Audit Fees?[J]. , 2015, 27(10): 19-32.

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