Will firms’ changes in fair value affect the audit fees? Evidence from Chinese listed firms

• In Event: SESSION 5C: IFRS Issues

Abstract

The adoption of fair value measurement model enhances the usefulness and quality of accounting information, and meanwhile how to ensure the reliability of the accounting information is an important issue for accounting and audit practices. External auditors play a critical role in safeguard and warrant the reliability of accounting information with fair value measurement. Thus the audit fee charged to audited clients could reflect the conservatism and the audit efforts that auditors have input. This paper examines the relationship of firms’ changes in fair values of gains and losses to the effect of audit fees charged to the Shanghai A-share listed companies in China during 2008-2010. We find that firms’ change in fair values of gains and losses in absolute value is positively relative to their audit fees, and the association between the changes in fair values and audit fees is more pronounced for the firms audited by big-10 accounting firms, compared to those audited by non-big 10 accounting firms. Lastly, our robustness test results also support the findings.

Authors

• Jianwei Ma, Beijing Technology and Business University

• Fujen Hsiao, University of Minnesota-Duluth

• Chao Liang, Beijing Technology and Business University