MD&A readability, auditor characteristics, and audit fees

This paper investigates the relationship between audit fees and MD&A readability in China. We find that audit fees generally are higher when MD&A readability is lower. However, we find Big4 auditors and industry specialist auditors do not increase audit fees when MD&As are less readable...

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Bibliographic Details
Published in:Accounting and finance (Parkville) 2021-12, Vol.61 (4), p.5025-5050
Main Authors: Wang, Le, Chen, Xiaoyan, Li, Xing, Tian, Gaoliang
Format: Article
Language:English
Subjects:
Audit efforts
Audit fees
Audit risk
Auditor characteristics
Auditors
Information decomposition
Management Discussion & Analysis
MD&A readability
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Summary:This paper investigates the relationship between audit fees and MD&A readability in China. We find that audit fees generally are higher when MD&A readability is lower. However, we find Big4 auditors and industry specialist auditors do not increase audit fees when MD&As are less readable while the other auditors do. We also find that it is the content unique to the reporting firm, rather than standard industry and market content in a MD&A that affects auditor fees. Our results also support that audit risk and audit efforts are two channels through which MD&A readability affects audit fees.
ISSN:0810-5391
1467-629X
DOI:10.1111/acfi.12748