Journal
INTERNATIONAL JOURNAL OF ACCOUNTING
Volume 52, Issue 1, Pages 64-76Publisher
ELSEVIER SCIENCE INC
DOI: 10.1016/j.intacc.2017.01.001
Keywords
Public fee disclosure; Bargaining power; Audit fee adjustments; China
Categories
Funding
- Beijing Municipal Commission of Education 'Pilot Reform of Accounting Discipline Clustering'
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Before the public disclosure of audit fees was mandated, it was unlikely for an audit client to have accurate information about how much other companies were charged by their auditors. Public fee disclosure decreases the cost of auditees' access to audit fee information for the auditor's portfolio of clients and is thus likely to increase the relative bargaining power of auditees over auditors when they negotiate audit fees. Using both proprietary and public audit fee data before and after public fee disclosure was mandated in China, we provide evidence consistent with the preceding conjecture. We find that public fee disclosure reinforces the magnitude of audit fee decreases for overcharged clients and weakens auditors' ability to raise audit fees for undercharged clients. These findings suggest the existence of unintended consequences of public fee disclosure regulation, the original rationale of which was a concern about audit pricing practices that could undermine auditor independence. (C) 2017 University of Illinois. All rights reserved.
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