The puzzling association between inventory and auditor pricing in China

作     者：Xi Wu Xueqin Wang Yulong Yang 

作者机构：School of Accountancy Central University of Finance and Economics China's Management Accounting Research & Development Center Central University of Finance and Economics College of Management and Economics Tianjin University 

出 版 物：《China Journal of Accounting Research》 (中国会计学刊（英文版）)

年 卷 期：2018年第11卷第4期

页      面：351-366页

学科分类：120201[管理学-会计学] 12[管理学] 0202[经济学-应用经济学] 1202[管理学-工商管理] 0201[经济学-理论经济学] 1201[管理学-管理科学与工程(可授管理学、工学学位)] 

主　　题：Inventory Audit fees Inherent risk China 

摘      要：The theory of audit pricing suggests that audit fees are positively associated with areas of higher inherent risk. Inventory is commonly cited as one such area, and many Western studies have reported a positive association between inventory and audit fees. However, most Chinese studies have reported a significant negative association. This study finds that this puzzling association is attributable to Chinese auditors charging a significant discount on the opening balance of inventory, whereas their U.S. counterparts charge a significant premium. Meanwhile, we show that opening-balance inventory is associated with higher inherent risk both in China and the U.S. On the other hand, both Chinese and U.S. auditors charge a significant discount on the net increase in inventory as of the current year end, and we show that this is associated with lower inherent risk. Therefore, Chinese auditors appear to underreact to the inherent risk associated with opening-balance inventory, which helps explain the puzzling negative association between inventory and audit fees in China.