The Asian Financial Crisis, Accounting Conservatism and Audit Fees: Evidence from Hong Kong

38 Pages Posted: 12 Aug 2002

See all articles by Ferdinand A. Gul

Ferdinand A. Gul

Monash University Sunway Campus

Bin Srinidhi

University of Texas at Arlington - Department of Accounting; City University of Hong Kong (CityUHK) - Department of Accountancy

Tony Shieh

City University of Hong Kong (CityUHK) - Department of Accountancy

Date Written: Undated

Abstract

In this paper, we first show that Hong Kong suffered a financial downturn during 1996-97 and that the downturn was associated with a decrease in accounting conservatism, as measured by the Basu model. One of the consequences of less conservative accounting is an increase in audit effort and the resulting fee. Using observations from Hong Kong listed companies and the standard audit fee model we show that there is an association between significant differences in conservatism between the downturn years (1996-1997) and non-downturn years (1994-1995) and audit fees. We also use seven years of observations from Hong Kong listed companies to show an inverse association between yearly accounting conservatism and average audit fees. These results are robust to adjustments for inflation and other sensitivity tests.

Keywords: financial downturn, accounting conservatism, audit fees, inherent risk

JEL Classification: M41, M44, M49, G14

Suggested Citation

Gul, Ferdinand A. and Srinidhi, Bin and Shieh, Tony, The Asian Financial Crisis, Accounting Conservatism and Audit Fees: Evidence from Hong Kong (Undated). Available at SSRN: https://ssrn.com/abstract=315062 or http://dx.doi.org/10.2139/ssrn.315062

Ferdinand A. Gul (Contact Author)

Monash University Sunway Campus ( email )

Jalan Lagoon Selatan
Selangor Darul Ehsan
Bandar Sunway, 46150
Malaysia

Bin Srinidhi

University of Texas at Arlington - Department of Accounting ( email )

Arlington, TX 76013
United States

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Tony Shieh

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China
+852 2788 7910 (Phone)

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