Do the legal and expert power of auditors enhance financial statement comparability? Evidence from audit fee premiums in Taiwan

Yu-Shan Chang, Li-Lin (Sunny) Liu and Wei-Ju Chen

Asian Review of Accounting, 2025, vol. 34, issue 2, 373-409

Abstract: PurposeThis study aims to investigate whether auditors with legal power (positional authority within accounting firms) and expert power (industry-specific expertise) can enhance the comparability of financial statements. It further examines whether auditors who charge audit fee premiums – reflecting perceived quality – can leverage their power to improve the quality of audited financial information.Design/methodology/approachUsing data from listed companies in Taiwan between 2011 and 2021, this study categorizes auditors based on their legal and expert power and analyzes their influence on financial statement comparability. It incorporates Taiwan’s unique dual-signature audit system and considers the interaction between auditor power and audit fee premiums using empirical regression models.FindingsThe results show that both legal and expert power of auditors are positively associated with financial statement comparability. However, only primary signing auditors with expert power significantly enhance comparability when combined with audit fee premiums. This suggests that industry expertise, rather than hierarchical position, plays a more critical role in improving audit quality. Additionally, the study highlights differences in incentives between primary and secondary auditors under Taiwan’s dual-signature system, which may lead to varying audit outcomes.Originality/valueThis study is the first to incorporate legal power at the individual auditor level, expanding the audit quality literature beyond firm-level characteristics. It distinguishes between legal and expert power, showing that expert power has a stronger impact on enhancing financial statement comparability. By considering Taiwan’s dual-signature system, the study offers new insights into auditor roles and incentives, providing valuable guidance for companies in auditor selection and for regulators concerned with audit quality.

Keywords: Financial statement comparability; Legal power; Expert power; Audit fee premiums (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:arapps:ara-10-2024-0314

DOI: 10.1108/ARA-10-2024-0314

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