The impact of semi-annual audits on audit fees and financial reporting quality: Evidence from Taiwan-registered foreign firms

This study investigates the effects on audit fees and financial reporting quality resulting from transitioning from a semi-annual review to a semi-annual audit for Taiwan-registered foreign firms (KY firms), following the 2021 regulatory amendment by the Financial Supervisory Commission. The regulation, implemented in response to major accounting scandals, mandates that KY firms have their semi-annual financial statements audited instead of reviewed. By analyzing data from 2019 to 2022, we examine the effects of this change on KY firms compared with those on non-KY firms. Our findings indicate that although audit fees for KY firms significantly increase after the regulation, there is no improvement in either semi-annual or annual financial reporting quality. Additionally, the regulation does not improve audit efficiency, as measured by audit report lag. These results raise questions about the optimal level of auditing and suggest the need for a balanced approach to audit regulations. The increased audit costs do not seem to yield proportional benefits in terms of reporting quality or efficiency. These findings have important implications for regulators and market participants in Taiwan and other emerging markets.