Abstract
All dates are from China companies between 2010 and 2014. From the aspect of the urban area level, the article explains the influence of the geographical positions of the accounting firms and client company and the size of the accounting firm on audit fees. There is a significant correlation between the fees and the distance. The results suggest that geography is significant and positively affects audit fees if audit firm and client company are in the same area; at the same time, audit firms’ scale economies can reduce audit fees for the study based on city-level (if audit firm and the client company are in the same area). Specially, audit location affects audit fees more significantly when audit firm has scale economy. These results suggest that geography and economies of scale affect audit fees.
Highlights
In China, audit market is inadequacy, and recently, many scholars have taken various methods to study basic audit theories to develop the audit market, and tried their best to prove that their findings are reliable
The results suggest that geography is significant and positively affects audit fees if audit firm and client company are in the same area; at the same time, audit firms’ scale economies can reduce audit fees for the study based on city-level
Cross term Regression coefficient is 0.0038, and significant positive in 1% (t = 10.25), both of them indicate if audit firm and company are in the same city, the power of audit location on audit fees are more stronger when audit firms have scale economy
Summary
In China, audit market is inadequacy, and recently, many scholars have taken various methods to study basic audit theories to develop the audit market, and tried their best to prove that their findings are reliable. Over the last few years, some scholars have studied the geographical characteristics between audit firm and customer company; they believed the distance was one of the important factors which affected audit fees and audit quality. The article examines the relation between scale economy and audit fees It shows the relation between geography factor (city-level) and audit fees, and puts forward the research hypotheses. The research conclusions have supplementary meaning for audit pricing determining It expands the theory of Wenjun Lin (2014) [7] about the auditor geographical position and audit pricing, and indicates that customers should care about firms’ location and focus on cities’ development
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