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Assessing financial reporting quality of family firms: The auditors׳ perspective

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  • Ghosh, Aloke(Al)
  • Tang, Charles Y.

Abstract

We analyze audit fees and audit risk to extract auditors׳ assessment of family-firm׳s financial reporting quality. Relative to non-family firms, we find that auditors charge family firms significantly less, and the fee difference shrinks in magnitude when family firms have high audit risk. Using constructs for audit risk and audit effort, we show that family firms have lower audit risk, and that their auditors work less to provide assurance. Our findings suggest that superior reporting quality lowers audit risk and the need for greater audit investments, which is why auditors charge family firms less.

Suggested Citation

  • Ghosh, Aloke(Al) & Tang, Charles Y., 2015. "Assessing financial reporting quality of family firms: The auditors׳ perspective," Journal of Accounting and Economics, Elsevier, vol. 60(1), pages 95-116.
    • Handle: RePEc:eee:jaecon:v:60:y:2015:i:1:p:95-116
    DOI: 10.1016/j.jacceco.2015.03.002
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    More about this item

    Keywords

    Family firms; Financial reporting quality; Audit fees; Audit risk;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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