Are Audit Committee Characteristics Associated with Fee Discounting in Initial Audit Engagements? Partner Level Evidence

• In Event: Research in Auditing

Abstract

This study examines whether fee discounting in initial audit engagements exists among Taiwan audit partners and whether certain characteristics of an audit committee can effectively ease this low-balling phenomenon. Low-balling may impair both auditor independence and audit quality (e.g., US SEC 2000; Huang, Raghunandan, Huang, and Chiou 2015) and thus is of concern to global regulators, legislators, and researchers. After enactment of US Sarbanes-Oxley Section 301, selection, compensations, and subsequent oversight of external auditors have strengthened the official responsibilities of audit committees and enhanced their supervisory functions.

Using a large sample comprising all publicly-traded companies between 2003 and 2016 on the Taiwan Stock Exchange, we find that (1) audit fee discounting in initial audit engagements exists among Taiwan audit partners, and (2) audit committee financial expertise is the only characteristic that can reduce fee discounting effectively in initial audit engagements.

Authors

• Yi Cheng Tsai, National Cheng Kung University

• Hua-Wei Huang, National Cheng Kung University