Research On The Impact Of Accounting Firm’s Integrity Records On Audit Fees

Regulatory mechanisms play an important role in the audit market,and the regulatory penalties imposed on accounting firms by regulatory agencies are constantly increasing.Firms may suffer reputational damage due to their punished integrity records,which will encourage them to increase audit investment and increase audit fees.With the comprehensive implementation of the registration system and the cancellation of administrative licenses for securities services in accounting firms,the supervision and information disclosure of accounting firms have become increasingly important.At the beginning of 2020,the Shanghai and Shenzhen Stock Exchanges required listed companies to directly disclose accounting firm’s integrity records,namely the punish for accounting firms,in their audit agency appointment announcements.This increases the disclosure channels for accounting firm’s integrity records,achieving one-to-one correspondence between listed companies and accounting firms’ integrity records,and affecting the risk environment and pricing decisions of accounting firms and listed companies.This article proposes research hypotheses based on the regulatory environment faced by accounting firms and the new disclosure requirements of the Shanghai and Shenzhen Stock Exchanges.A sample of A-share listed companies in Shanghai and Shenzhen Stock Exchanges from 2018 to 2021 is selected,and the required data is collected through the official websites of regulatory agencies such as the China Securities Regulatory Commission,CNINFO and CSMAR.A multiple regression model is constructed,and empirical research methods are used to study the impact of accounting firm’s integrity records on audit fees,the impact of disclosing accounting firm’s integrity records in audit agency appointment announcements of listed companies on this relationship,and the differences in this impact among audit clients at different risk levels.The following conclusions are drawn: Firstly,accounting firm’s integrity records have a significant improvement effect on audit fees,which means that accounting firms will be more cautious and increase audit investment due to their integrity records,resulting in an increase in audit fees;Secondly,with the addition of the new disclosure channel of audit agency appointment announcements for listed companies,accounting firm’s integrity records are accompanied by significantly higher audit fees.This means that the new disclosure channel brings a one-to-one "labeling" effect,reducing the information search cost of accounting firms’ integrity records and enhancing information transmission efforts,thereby making accounting firms pay more attention to their service quality and increasing audit investment,resulting in an increase in audit fees;Thirdly,with the addition of the new disclosure channel of audit agency appointment announcements for listed companies,the impact of accounting firm’s integrity records on the improvement of audit fees for low-risk clients will be significantly weakened.This means that the firm’s cautious attitude will vary depending on the risk level of audit clients,and the firm’s cautious attitude towards low-risk clients is relatively weak,making its effect on increasing audit fees for low-risk clients weaker.This study can demonstrate that integrity records can enhance firms’ professional prudence and audit investment,and information disclosure has been strengthened,which to some extent reflects the effectiveness of regulatory mechanisms and information disclosure systems in the audit market.Based on the research findings,this article proposes suggestions at the levels of regulatory agencies,accounting firms,and listed companies,in order to better leverage the role of regulatory mechanisms and information disclosure systems.