Regional Corruption And Abnormal Audit Fees

As a third-party independent guarantor of enterprise financial report,the auditor's audit decision plays a role of risk indicator and has important reference value for market investors.In recent years,China's accounting firms have experienced a transition from a limited liability company system to a special general partnership system,which means that auditors have to bear more legal responsibilities in audit activities and forces auditors to pay more attention to the the risk of client companies.The development of an enterprise cannot be independent of its living environment,and environment has an important impact on enterprise's decision-making behavior.Therefore,the uncertainty of environment has become a comprehensive embodiment of enterprise risks.Since ancient times,corruption has been a persistent ailment of civilized society.Since the 18 th CPC national congress,China's corruption governance has entered a “new normal”.Regional corruption,as an external governance mechanism for the survival of a enterprise,is an important determinant of the uncertainty of enterprise environment.Auditors often go deep into the enterprise field and have more private information about a enterprise.Can auditors detect regional corruption that play a role of the main factor that determines the uncertainty of enterprise environment in time,and incorporate it into their risk assessment system? This problem deserves further discussion.Based on the background of China's economic transition,this paper takes abnormal audit fees as the proxy variable of auditor risk assessment to explore the impact of regional corruption on abnormal audit fees using a sample of A-Share listed companies in China's Shanghai and Shenzhen stock exchanges from 2008 to 2016.The results show that there is a U-shaped curve relationship between regional corruption and abnormal audit fees.Namely,when the regional corruption is at a low level,the abnormal audit fees decrease with the increase of regional corruption;when the regional corruption breaks through a certain threshold,the abnormal audit fees increase with the increase of regional corruption.And this type of U-shaped relationship has obvious macro-environment heterogeneity and firm-characteristic heterogeneity,namely,it is more pronounced in the period before the18 th CPC national congress held and in areas with lower degree of marketization,as well asin state-owned enterprises and enterprises with a high proportion of fixed assets.Further empirical analysis shows that there is a positive correlation between abnormal audit fees and corporate litigation risk and regulatory risk,which indicates that abnormal audit fees can be used as a proxy variable for auditor risk assessment.Our findings suggest that,on the whole,high level of corruption has played a “stumbling block” role in hindering economic development,and vigorous anti-corruption is still imperative in the new period.This study reveals the root cause of the prevailing corruption in China,enriches relevant research on the influencing factors of abnormal audit fees,and provides more references for investors' investment decisions.