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Exploring the audit quality and audit fee impacts of joining different types of non-Big Four accounting networks and associations: evidence from China

Camillo Lento (Faculty of Business Administration, Lakehead University – Thunder Bay Campus, Thunder Bay, Canada)
Wing Him Yeung (Faculty of Business Administration, Lakehead University – Thunder Bay Campus, Thunder Bay, Canada)

Journal of Financial Reporting and Accounting

ISSN: 1985-2517

Article publication date: 20 February 2023

216

Abstract

Purpose

This paper aims to explore the audit quality and fee implications of joining a global accounting firm network and association (“AF N&A”).

Design/methodology/approach

A hand-collected sample focusing upon the pre- and post-periods around the time when an independent audit firm joins an AF N&A is developed. A propensity score-matched sample is created to address the endogeneity and self-selection bias. OLS regression is used on a sample of around 2,000 firm-year observations from 2003 to 2014.

Findings

Membership with an AF N&A is associated with higher levels of audit quality and audit fees. Furthermore, audit quality and fee increases are more pronounced for audit firms that become members of a larger, more formal AF N&A.

Originality/value

This paper provides additional insights into the conflicting results regarding the audit quality implications of membership with AF N&As in China. This paper also extends the discussion by exploring the audit quality and fee differentials among the non-Big Four AF N&As. These findings have significant implications for independent audit firms pursuing membership with an AF N&A and regulators seeking to reduce market concentration around the Big Four.

Keywords

Acknowledgements

The authors acknowledge the constructive feedback provided by three anonymous referees and an associate editor during the review process. These comments significantly improved the manuscript.

Data: All data used in this research are publicly available. The data used in this paper were obtained from the CSMAR database.

Citation

Lento, C. and Yeung, W.H. (2023), "Exploring the audit quality and audit fee impacts of joining different types of non-Big Four accounting networks and associations: evidence from China", Journal of Financial Reporting and Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-10-2022-0359

Publisher

:

Emerald Publishing Limited

Copyright © 2023, Emerald Publishing Limited

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