Does International Accounting Network Membership Affect Audit Fees and Audit Quality? Evidence from Chinese Small Audit Firms

The International Journal of Accounting, Vol. 52-3, (Forthcoming)

Posted: 20 Apr 2017

See all articles by Juan Mao

Juan Mao

University of Texas at San Antonio - Department of Accounting

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management

Qian Xu

China Agriculture University

Date Written: April 18, 2017

Abstract

Regulators suggest that small audit firms should join international accounting networks to reduce their resource constraints in serving large clients and providing high-quality service. Bills, Cunningham, and Myers (BCM, 2016) investigate the issue in the U.S. and find that audit fees and quality are both higher for members of international accounting networks (i.e., member audit firms). We investigate the effects of network membership on audit fees and quality in China, a weak institutional environment. Using data of Chinese listed companies audited by non-Big N audit firms from 2001 to 2010, we find that member audit firms charge 3.9% higher fees than nonmember audit firms, much lower than 30% fee premiums charged by U.S. member audit firms (BCM, 2016). We fail to find consistent evidence that audit quality is higher for member audit firms. Overall, our results demonstrate that China’s weak institutional environment may overwhelm the quality control brought by international accounting networks and it may weaken or even offset the benefits of audit firms’ participation in these networks, resulting in smaller or even no effects of membership on audit fees and quality.

Keywords: Accounting Networks, Small Audit Firms, Weak Institutional Environment, Audit Fees, Audit Quality

Suggested Citation

Mao, Juan and Qi, Baolei and Xu, Qian, Does International Accounting Network Membership Affect Audit Fees and Audit Quality? Evidence from Chinese Small Audit Firms (April 18, 2017). The International Journal of Accounting, Vol. 52-3, (Forthcoming), Available at SSRN: https://ssrn.com/abstract=2954663

Juan Mao (Contact Author)

University of Texas at San Antonio - Department of Accounting ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8305 (Phone)

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Qian Xu

China Agriculture University ( email )

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