Executive Incentives And Audit Fees

The extensive compensation for corporate executives has come under attack in recent years,triggered by an unprecedented number of accounting and governance scandals.Domestic scholars mainly study the relationship between executive incentive and earnings management from the direction of managerial cash pay incentives.Some studies have found that management cash pay incentives can trigger their earnings management behavior.Foreign scholars mainly study the relationship between executive incentive and earnings management from the direction of equity incentive.They came to different conclusions.Some studies have found that equity incentives encourage executives to raise earnings management;But some other scholars did not find evidence of equity incentive and accounting manipulation.While the implications of executive incentives for earnings management are well studied in the literature,there is relatively little research on how auditors' risk assessments and pricing decisions are affected by executive incentives.In this study,we explore this issue by investigating the relation between executive incentives and audit fees.Auditing standards suggest that auditors consider management's equity compensation as a risk factor when evaluating clients risk of material misstatement.Based on the above analysis,this paper uses data from 2007 to 20116 of Shanghai and Shenzhen listed companies,using the Bergstresser and Philippon(2006)equity calculation model to the executive equity incentive degree of a new measure.After descriptive statistics and correlation analysis of variables,we study the impact of different ways of executive incentive on audit fees investigated by regression analysis.From the empirical results,the following conclusions are found in this paper:The impact of different executive incentives on audit fees is inconsistent.There is a significant positive correlation between executive cash compensation incentives and executive job consumption and audit fees,While there is a significant negative correlation between executive equity incentive and audit fees.This shows that certified public accountants believe that cash compensation incentives will lead to speculation in management behavior will increase the audit risk.The level of executive duties can reflect the level of internal control,and A sound internal control system can effectively control the management of unnecessary job consumption.As a long-term incentive Executive,equity incentive can tie corporate interests of the interests as the same,and thus reduce the short-term behavior of corporate executives.