The effect of directors’ and officers’ insurance on audit fees: the case of an emerging economy

Purpose - The purpose of this paper is to examine the role of D&O insurance in audit pricing in Taiwan, an emerging market in which auditors face negligible litigation risk and intense competition. Design/methodology/approach - It examines the association between audit fees and D&O insurance coverage. Findings - Results indicate that audit fees are higher for clients with higher D&O coverage after controlling for other determinants. Further analysis shows that auditors charge additional audit fees for clients whose insurer is foreign owned. Originality/value - Overall, the study provides evidence that the induction of financial misstatement risks by D&O insurance is one of the contributing audit risk factors in an emerging economy context.