Investigating The Pricing Of Audit

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Researches about audit pricing started in the 1980s with the publishing of Simunic (1980)’s The pricing of audit services: Theory and evidence. He set out the multiple regression model of audit pricing and run the regression analysis using data from 397 listed companies in USA. Simunic took the position that “audit fees are determined by the loss exposure of the client comlany, the apportionment rate of loss between the audit firm and the client company, and the production function and characteristics of the audit firm”. The results of his study demonstrate that the scale of an auditee is the most significant factor determining its audit fees, despite other factors, such as the ratio of receivables to total assets of the client company and…show more content…
All of the researches mentioned above focus on developed economies, where audit markets have similar characteristics: audit markets are mature and oligopolistic; audit markets operate under stable policy and regulation. However, things might be different in China, a developing economy, due to the imperfect regulation and a highly competitive audit market, where top ten audit firms are only in charge of 30% listed companies during 2005-2007, while big 8 audit firms dominated the audit market in developed economies in the same period (Li et al., 2005; Wang et al., 2008). Most empirical studies of audit fees have come out due to government’s requirement of Chinese listed companies to disclose audit fees in their financial reports, since 2001. Some works investigate the determinants of audit fees directly. Wang (2002) became the first researcher to study audit pricing determinants of Chinese listed companies. He concludes that the scale of client firm and auditor, the complexity of client firm, audit opinion, audit risk, and the industry of client firms are of statistically significance in determining audit fees. Liu et al. (2003)’s research further concludes that the location of client firm is significantly related to audit fees. Wu (2003)’s contribution is that there is a positive relationship between the changing of audit opinions (basically from unqualified opinion to qualified
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