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

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.

It examines the association between audit fees and D&O insurance coverage.

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.

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.