Audit fees and hours of Chinese companies listed on the South Korean stock market

Abstract

ABSTRACT The number of Chinese companies directly listed on foreign exchanges in the form of offshore holding companies has increased with China’s rapid economic growth. However, different regulations and audit environments between China and other countries as well as the unique characteristics of offshore holding companies may increase audit risk. This study investigates the audit quality of Chinese companies listed on the Korean stock market compared to Korean companies. We find that auditors charge higher overall audit fees and hourly rates and spend more hours auditing Chinese holding companies than Korean companies. We also find that while abnormally high audit hours enhance audit quality of Korean companies, the audit quality of Chinese companies is not improved. Our findings indicate that auditors perceive Chinese companies listed in Korea as having a higher audit risk.