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Does Corporate Debt Default Influence Audit Fee?

【Authors】
CHEN Jing, ZHANG Jindan & FANG Junxiong
【WorkUnit】
CHEN Jing, ZHANG Jindan & FANG Junxiong
(Fudan University, 200433; Zhejiang University of Finance and Economics, 310018)
【Abstract】

It is important that whether auditors are able to respond in advance to corporate debt default, since it will seriously damage the interest of the firm and related stakeholders. Taking China's A-share listed companies from 2001 to 2015 as samples, this paper for the first time systematically examines how audit fees vary before and after the debt default exposure. We find that auditors raise audit fees in advance before the exposure of a firm's debt default, and they will continue to raise audit fees after the debt default exposure, considering the lower accounting information quality and higher audit risks. This result has important implications for understanding and giving full play to the auditors' prejudging ability for debt risk. Further, auditors' position on the market and the firm's severity of default have an impact on how timely the auditors can respond. Moreover, auditors are not sensitive to the default exposure of stateowned enterprises, verifying the existence of implicit government guarantees, which damages auditors' proper response to the debt risk of state-owned enterprises.

JEL:J33, G32

【KeyWords】
Debt Default, Audit Risk, Audit Fee