The Impact of PCAOB International Registration on Audit Quality and Audit Fees: Evidence from China.

• In Event: Breakfast and Research & Education Table Forum
  In Roundtable Session: Table 4: Audit Quality 2

Abstract

Although the PCAOB allows registration of audit firms from non-US countries, China and a few other countries do not allow the PCAOB to conduct inspections of audit firms. We take advantage of this natural setting to investigate whether PCAOB registered audit firms increase audit quality in the absence of inspections. We also examine whether PCAOB registered firms charge an audit fee premium. If both audit quality and audit fees increase, then we can infer that PCAOB registration leads to improved audit quality and an associated increase in audit fees. Our results support these conjectures. Overall, our findings suggest that PCAOB registration has a positive impact on the quality of audits in China, for which clients are willing to pay higher audit fees.

Authors

• Wuchun Chi, National Chengchi University

• Hamilton Elkins, University of Saskatchewan

• Gerald Lobo, University of Houston-Houston

• Partha Sarathi Mohapatra, California State University-Sacramento