Parent Auditors versus Non-Parent Auditors upon Initial Audit Engagement

• In Event: Accounting Conservatism: International Evidence
  In Paper Session: Accounting Conservatism, Compensation, and Auditing: International Evidence

Abstract

This paper examines the effect of parent auditors and non-parent auditors on audit fees and audit quality upon auditor changes. Using 1,231 firm-year subsidiary observations, we find that compared to clients without auditor changes, subsidiaries changing to parent auditors are associated with significant decreases in audit fees but insignificant changes in audit quality, measured as discretionary accruals and the likelihood of financial restatements. In contrast, subsidiaries moving to non-parent auditors do not experience significant changes in audit fees but exhibit higher discretionary accruals and higher likelihood of financial restatements. Collectively, our results suggest that auditors with better knowledge of group audits are more efficient in auditing subsidiaries and can control the risk of group audits when they audit both the parent and the subsidiary.

Authors

• Ting-Chiao Huang, National Cheng Kung University

• Hua-Wei Huang, National Cheng Kung University

• Nen-Chen Richard Hwang, California State University, San Marcos