Auditors for U.S. Listed Chinese Companies: Does Size Matter?

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  In Paper Session: Audit Quality Roundtable

Abstract

This paper investigates whether US auditors charge more than the auditors from China for Chinese companies that are listed in the US stock market. US-listed Chinese firms from the Audit Analytics’ Audit fee files, the auditor’s names, auditor changes, and fee information for the period from 2006 to 2014 are identified and selected. Two-step multivariate ordinary least square regression analysis is used to assess whether US-listed Chinese companies employ US auditors.
Results show that the US audit firms charge less audit fees than the auditors in China for their smaller US-listed Chinese clients. Hypotheses is that the smaller US-listed Chinese firms are rejected by the China Big4 firms, therefore, select non-big4 US auditors.
The findings suggest that US audit firms take excessive risks for audit engagements, and bottom fishing by low-balling audit fees to gain market shares during the financial crisis. The small US-listed Chinese companies value US audit services, and US auditors are willing to accept higher engagement risks in emerging markets. Despite the PCAOB warning of the overseas registered accounting firms, US auditors are aggressively compete for clients with lower fees, which has attracted US-listed Chinese firms.

Author

• Raymond Ho, Beijing Institute of technology Zhuhai China