Theme: When do auditors adjust audit fees in response to heightened misstatement risk?

Lecturer: Liuchuang Li , Professor, School of Management, Xi'an Jiaotong University

Time: 2022.06.07 15:00

Site: Tecent meeting 626 918 873

Abstract:

We examine when auditors adjust audit fees in response to heightened misstatement risk. Difference-in-differences regression results show auditors only increase audit fees subsequent to the completion of misstatements, rather than in an early stage where clients are engaging in misstatements. Cross-sectional tests show that auditors’bargaining power, client complexity or the presence of lenders help explain the delayed audit fee adjustment. As increases in audit fees not only accelerate the revelation of misstatements but postpone the issuance of annual reports, suggesting that audit fee increases, albeit being delayed, are a manifestation of extra audit effort, consistent with the risk adjustment hypothesis. We also show that delayed audit fee increases provide an alternative explanation to the negative association between audit fees and misstatements documented by Lobo and Zhao (2013).

Introduction to the lecturer:

Liuchuang Li is currently a professor in the Accounting Department of the School of Management, Xi'an Jiaotong University. His research interests mainly focus on the economic consequences of accounting system arrangements, including the impact of accounting systems, audit supervision, and media on information disclosure of listed companies, accounting information quality, auditor behavior, and audit market efficiency. In recent years, he has published more than 20 papers in domestic and foreign journals, including The Accounting Review, Journal of Banking & Finance, Financial Management, Auditing: a Journal of Practice & Theory, etc. He also serves as a correspondent reviewer for JBF, Nankai Management Review, etc.