Does Excellence in Corporate Governance Restrain Audit Fee Discounting After the Termination of Mandatory Auditor Designation?

This study examines whether there exists an audit fee discount phenomenon after the termination of mandatory auditor assignment under the periodic designation system, and analyzes how corporate governance excellence indicators related to accounting and auditing, as proposed in the Financial Services Commission's corporate value enhancement plan, affect this audit fee discount. We investigate whether audit fees were discounted after the termination of the mandatory auditor designation period in 2023 for companies that had auditors assigned under the periodic designation system from 2020 to 2022. Additionally, we analyze whether this audit fee discount following the introduction of the periodic designation system is associated with corporate governance excellence indicators related to accounting and auditing, such as the presence of an audit committee, the accounting expertise of the audit committee chair, variables related to dedicated support organizations for the audit committee, and auditor appointment policy variables. Our analysis reveals that there is a significant audit fee discount phenomenon when companies appoint auditors under the free appointment system immediately after the termination of the periodic designation system. However, the magnitude of this discount is significantly smaller for companies with established audit committees. Furthermore, corporate governance excellence indicators related to accounting and auditing significantly mitigate the degree of audit fee reduction. These findings suggest that the auditor appointment system, whether periodic designation or free appointment, affects audit fee levels, and that excellence in corporate governance related to accounting and auditing can be a factor in restraining the audit fee dumping phenomenon.