Employee training and audit fees

Using a sample of Chinese listed firms from 2012 to 2020, this study investigates whether auditors perceive employee training as a factor that reduces firm risk, resulting in lower audit fees. We find that employee training fees are negatively associated with audit fees, suggesting that auditors consider employee training when assessing firm risk. Through path analysis, we document that employee training contributes to a reduction in audit pricing through decreased inherent risk, control risk, and litigation risk. Moreover, using textual analysis, we further categorize employee training and find that audit fees are significantly lower for companies that conduct product quality training, control environment training, and employee quality training. Additionally, our paper documents that the relationship between employee training fees and audit fees is less pronounced for firms with lower human capital. Overall, our findings imply that auditors regard employee training as a crucial determinant of firm risk, and that employee training has a positive impact on firms.