Assessing Financial Reporting Quality of Family Firms: The Auditors’ Perspective
Journal of Accounting and Economics, 2015 Forthcoming
47 Pages Posted: 18 Mar 2015
Date Written: March 16, 2015
We analyze audit fees and audit risk to extract auditor’s assessment of family firms’ financial reporting quality. Relative to non-family firms, we find that auditors charge significantly less from family firms and the fee difference shrinks in magnitude when family firms have high audit risk. Using constructs for audit risk and audit effort, we show that family firms have lower audit risk and that their auditors work less to provide assurance. Our findings suggest that superior reporting quality lowers audit risk and the need for greater audit investments, which is why auditors charge less from family firms.
Keywords: family firms, financial reporting quality, audit fees, audit risk
JEL Classification: M41
Suggested Citation: Suggested Citation