Abstract
This paper aims to investigate the impact of independent directors with industrial expertise on the association between audit complexity and audit fee. About 50 per cent of China’s listed companies hire industry experts as independent directors. We find that the association between audit complexity and audit fee is stronger in firms that have independent directors with industrial expertise than in firms that do not. Furthermore, the impact of independent directors with industrial expertise is more pronounced for firms audited by the Big Four audit firms. The results suggest that the existence of independent directors with industrial expertise stimulates auditors’ awareness of the business risk of their clients, which may help auditors detect clients’ opportunistic behaviour in a complex business environment.
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We gratefully acknowledge the constructive suggestions provided by the Executive Editor and the two anonymous referees. We would also like to thank Dr Jun Huang from Shanghai University of Finance and Economics, Dr Bin Zhang from Yangzhou University, and Ms Yao Xie, Ms Fen Yin, and Ms Juan Lin from Shanghai University of Finance and Economics for their assistance in data collection and handling. This research is sponsored by the National Natural Science Fund (Grant no. 71102137) and the Ministry of Education’s Project of Key Research Institutes of Humanities and Social Science in Universities (No. 12JJD790037).
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Zhao, Z., Zhou, J. Independent Directors with Industrial Expertise, Audit Complexity, and Audit Fee. China Account Financ Rev 15, 2 (2013). https://doi.org/10.7603/s40570-013-0002-y
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DOI: https://doi.org/10.7603/s40570-013-0002-y