The relationship between the volatility of other comprehensive income and audit fees: Evidence from China

Abstract

Because of the fair-value measurement, managers need plenty of subjective judgements on the issues of other comprehensive income (OCI). This increases the auditing risks and working difficulties for auditors. This study aims to investigate the relationship between audit fees and the volatility of OCI in China. Also, it further investigates this relationship in companies audited by Big 4 firms and in companies audited by auditors with tenure years longer than the median level. After applying the regression model to the data of Chinese A-share listed companies from 2014 to 2018, this study finds that the relationship between the audit fees and volatility of OCI cannot be approved. This is also true from companies audited by Big 4 firms. However, in companies audited by experienced auditors, the relationship is significantly positive. The results indicate that in China, audit firms generally do not take the risks in the volatility of OCI seriously, but auditors with long tenure years tend to realize and price higher for these risks.