Abstract
Regulatory requirements to adopt IFRS and to disclose audit fees make it possible to examine association between audit fees and proportion of fair-valued assets among firms in Taiwan. A voluntary choice of adding audit committee in the firm for monitoring purpose also helps to examine the association further. Empirical results indicate that lower audit fees is related to higher proportion of (Level 2) fair-valued assets, a finding consistent to Goncharov et al.’s (2014) suggestion that firms pay lower audit fees with fair-value model than with cost model. Insignificant association is found for proportion of Level 3 fair-valued assets, which is similar to Glover et al.’s (2014) suggestion that firm’s reluctant attitude in adopting Level 3 assets. Last of all, when audit committee is added, firm’s audit fees is negatively associated with Level 1 and 2 fair-valued assets, implying audit committee’s role of monitoring and further reducing audit risk and audit fees among Taiwanese firms.
Highlights
Due to the impact of 1997 Asian financial crisis and a series of corporate financial scandals afterward, domestically and internationally, in early 2000’s, regulators in Taiwan started to concern the importance of corporate governance and related financial regulations
We find negative association between audit fees and the proportion of Level 2 fair valued assets
Description: Sample size: 2,042 observations; dependent variable LnAFee is the natural-log-transformed value of audit fees; fair valued assets to total assets (FVA_TA) is the proportion of fair valued assets; LnAsset is the natural-log-transformed of total assets; Big4 is a dichotomous variable coded as 1 for firms audited by Big-4 auditors and 0 for non-Big-4 auditors; Inv_TA
Summary
Due to the impact of 1997 Asian financial crisis and a series of corporate financial scandals afterward, domestically and internationally, in early 2000’s, regulators in Taiwan started to concern the importance of corporate governance and related financial regulations. Since 2007, under the requirement of Financial Supervisory Commission, firms in Taiwan may voluntary set audit committee, which includes independent directors only, within corporate board for monitoring purpose rather than adopt the conventional two-tiered supervisor-board. Empirical results indicate that lower audit fees is related to higher proportion of fair valued assets to total assets, a finding consistent to Goncharov, Riedl, and Sellhorn’s (2014) suggestion that firms pay lower audit fees with fair value model than with cost model. The finding adds to the literature on corporate governance and fair value assets in Taiwan, especially the global convergence of U.S featured audit committee (Dallas and Scott, 2006; Hsu, 2014) in Taiwanese firms for monitoring purpose.
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