5. Conclusion
The implementation of government strategies to help domestic accounting firms grow bigger and stronger to compete abroad has resulted in substantial changes in the Chinese audit market. Domestic auditors have grown significantly in size and market share since 2007. Two large domestic auditors have even managed to overtake Ernst & Young and KPMG in terms of revenue to take their place among the Top 4 auditors in the Chinese market. Eight large domestic auditors and the Big 4 are authorized to conduct statutory audits on H-shares for foreign investors in the Hong Kong stock market. Large domestic auditors have thus emerged as an alternative to the Big 4 for Chinese listed companies. Hence, the significant growth in the practices of second-tier auditors presents an ideal opportunity to re-examine the relationship between auditor size, audit fee premium, and audit quality.
Most Chinese research to date has focused on the differences in audit fees and audit quality between Big 4 and non-Big 4 or between Top 10 and non-Top 10. Thus, the question of whether the audit fees and audit quality of second-tier auditors are distinct from those of the Big 4 or other non-Big 4 auditors remains ripe for exploration. In this paper, we investigate the differences in audit fees and audit quality across three categories of auditors, namely the Big 4, second-tier, and other small auditors.
