The effect of directors’ and officers’ insurance on audit fees: the case of an emerging economy
Abstract
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<jats:title content-type="abstract-subheading">Purpose</jats:title>
<jats:p>The purpose of this paper is to examine the role of D&O insurance in audit pricing in Taiwan, an emerging market in which auditors face negligible litigation risk and intense competition.</jats:p>
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<jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title>
<jats:p>It examines the association between audit fees and D&O insurance coverage.</jats:p>
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<jats:title content-type="abstract-subheading">Findings</jats:title>
<jats:p>Results indicate that audit fees are higher for clients with higher D&O coverage after controlling for other determinants. Further analysis shows that auditors charge additional audit fees for clients whose insurer is foreign owned.</jats:p>
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<jats:title content-type="abstract-subheading">Originality/value</jats:title>
<jats:p>Overall, the study provides evidence that the induction of financial misstatement risks by D&O insurance is one of the contributing audit risk factors in an emerging economy context.</jats:p>
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