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The effect of directors’ and officers’ insurance on audit fees: the case of an emerging economy

Kuei-Fu Li (Department of Accounting, Ming Chuan University , Taipei, Taiwan)
Yi-Ping Liao (Department of Accounting, Ming Chuan University , Taipei, Taiwan)

Asian Review of Accounting

ISSN: 1321-7348

Article publication date: 2 May 2017

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Abstract

Purpose

The purpose of this paper is to examine the role of D&O insurance in audit pricing in Taiwan, an emerging market in which auditors face negligible litigation risk and intense competition.

Design/methodology/approach

It examines the association between audit fees and D&O insurance coverage.

Findings

Results indicate that audit fees are higher for clients with higher D&O coverage after controlling for other determinants. Further analysis shows that auditors charge additional audit fees for clients whose insurer is foreign owned.

Originality/value

Overall, the study provides evidence that the induction of financial misstatement risks by D&O insurance is one of the contributing audit risk factors in an emerging economy context.

Keywords

Citation

Li, K.-F. and Liao, Y.-P. (2017), "The effect of directors’ and officers’ insurance on audit fees: the case of an emerging economy", Asian Review of Accounting, Vol. 25 No. 2, pp. 174-190. https://doi.org/10.1108/ARA-04-2016-0045

Publisher

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Emerald Publishing Limited

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