||A study of practice office region, audit quality, and audit fees－Why would a company use a non-local practice office?
||Department of Accountancy
practice office region
local/non-local practice office
earning response coefficient
This paper examines why some companies prefer to use a practice office far from their headquarters in Taiwan. It investigates the differences in audit quality and audit fees among different regions of practice offices, and also examines the distinction between local and non-local practice offices by using a sample of Taiwanese companies.
The results reveal that there is no significant difference in audit quality among different regions, but the audit fees are significantly higher in Hsinchu region than in Taipei, Taichuang, Tainan, and Kaohsiung regions, and in the northern and southern areas than in the midland area. In addition, the audit fees are significantly lower and the audit quality significantly decreases if the audit is carried out by a non-local practice office. To conclude, the reason why some companies prefer a more distance practice office is that, in order to win customers, some audit firms may cut their fees, however these lower fees may encourage the firms to reduce the amount of work that they do, leading to decreased audit quality.
2.Related studies and hypotheses development 3
2.1.Client's headquarters and audit firm's practice offices 3
2.2.Hypotheses on the region of audit firm’s practice office 4
2.3.Hypotheses on local vs. non-local practice office 5
3.Research design and sample selection 8
3.1.Variable measurement 8
3.2.Model for the audit firm’s practice office region 10
3.3.Model for local vs. non-local practice office 14
3.4.Sample selection 17
4.Empirical results 19
4.1.Descriptive statistics 19
4.2.Results from regression on the audit firm’s practice office region 27
4.3.Results from regression on local vs. non-local practice office 33
4.4.Additional analyses 39
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