Exploring the audit quality and audit fee impacts of joining different types of non-Big Four accounting networks and associations: evidence from China

Camillo Lento and Wing Him Yeung

Journal of Financial Reporting and Accounting, 2023, vol. 23, issue 3, 1248-1270

Abstract: Purpose - This paper aims to explore the audit quality and fee implications of joining a global accounting firm network and association (“AF N&A”). Design/methodology/approach - A hand-collected sample focusing upon the pre- and post-periods around the time when an independent audit firm joins an AF N&A is developed. A propensity score-matched sample is created to address the endogeneity and self-selection bias. OLS regression is used on a sample of around 2,000 firm-year observations from 2003 to 2014. Findings - Membership with an AF N&A is associated with higher levels of audit quality and audit fees. Furthermore, audit quality and fee increases are more pronounced for audit firms that become members of a larger, more formal AF N&A. Originality/value - This paper provides additional insights into the conflicting results regarding the audit quality implications of membership with AF N&As in China. This paper also extends the discussion by exploring the audit quality and fee differentials among the non-Big Four AF N&As. These findings have significant implications for independent audit firms pursuing membership with an AF N&A and regulators seeking to reduce market concentration around the Big Four.

Keywords: Audit fees; Audit quality; Chinese audit market; Global accounting firm networks and associations; G14; M41; M42 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrapp:jfra-10-2022-0359

DOI: 10.1108/JFRA-10-2022-0359

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