The Impact of Life Cycle on Audit Fees: Evidence From Taiwan
Yu - Lin Chang,
Ling Tung University
Chung - Jen Fu, National Yunlin University of Science and Technology
ABSTRACT. Several studies of the U.S. audit market have found evidence of “risk” fee premium. This study further examines the impact of risk factor such as the life cycle stage on the audit pricing. We apply Simunic (1980) audit fees model to examine the impacts on the audit fees between the various life cycle stages. The sample includes 374 firms having audit fee publicly disclosed based on the electronic industry in Taiwan from periods 2002 to 2005 and yields a total of 563 firm-years observations. Our findings indicate that (1) the audit fees in the decline stage is significantly higher than in the growth stage and mature stage; (2) the audit fees in the growth stage is not higher than in the mature stage. This study contributes to the audit fees literature and it indicates that the impact of life cycle on the auditor’ perceived business risk is critical for CPA firm setting the audit fees.
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