Empirical Study On Correlation Of Abnormal Audit Fee And Audit Quality

Certified public accountants often face the following two interests’ temptation:One is to reduce the audit cost by simplifying the audit process for improving thelevel of their own profit, or to use a low price strategy for bidding; second is to agreeto the corporate management’s violating accounting principle or deliberately not todisclose related matters in order to maintain or fight for customers. These are thesources of abnormal audit fee.This paper divides the audit fee of listed company into two parts: the first partis the normal audit fee which is generated in the process of auditing and should bearthe cost of future litigation risk. Listed companies have different audit fees due to itsdifferences of scale, the complexity of business and audit risk. The second part is theabnormal audit fee. In this study, we define it as deviation from normal fees. Fromthe view of relation of actual audit fee and normal audit fee, this paper divides auditfee into positive and negative abnormal audit fee: positive abnormal audit fee meansthat actual audit fee is higher than normal fee; negative abnormal audit fee meansthat actual audit fee is lower than normal audit fee.This paper has an evaluation of discretionary accruals on the basis of theadjusted Jones’ model and tests the relation between abnormal audit fee and auditquality by analyzing the relevant data of listed company in year2010-2012. Theresults showed that the abnormal audit fee impairs audit quality. With the increase ofhigher audit fee, the audit quality will decline; with the decline of lower audit fee,the audit quality will also decline. Therefore, whether the audit fee is positive ornegative anomaly, audit quality will be affected. When evaluating the reward of auditors, investors, regulators and other relevant personnel should focus on the highside and low side at the same time. Abnormal high audit fee may mean the existenceof audit opinion purchase phenomenon; abnormal low audit fee may mean thesimplifying of audit process or low price competition. These two situations may bothaffect audit quality. Therefore, when judging the high and low level of audit quality,the user of accounting information should take whether the audit fee is abnormal asan important reference factor.The study will attract broad accounting scholars and investors’ interest andattention and also can bring us more in-depth understanding of audit market andaudit industry. Supervision department can find whether low price competition oraudit opinion purchase exists in audit market by studying of abnormal audit fee andworking out scientific and reasonable charging standard along with effectivesupervision to promote the benign development of China’s audit industry.I divided this paper into six parts: the first part expounds the researchbackground, significance of this paper, content arrangement, research frameworkand innovation points. The second part is the review of related literature at home andabroad. The literature is reviewed from three aspects such as the research of auditfees determinants, the relation of audit fee and audit quality and the relation ofabnormal audit fee and audit quality. The third part illustrates the principal-agenttheory and other related concepts first, and then does theory analysis for puttingforward relevant assumptions. In the fourth part, I select samples, build the model,and carry on the empirical analysis from different perspectives. The fifth part is theanalysis of the empirical results. The sixth part expounds the main researchconclusions, research revelation and suggestions for subsequent research.