Audit Quality
Mandana Taheri; Ghasem Blue; Ramin Parvarpour
Abstract
Information asymmetry and economic uncertainty are features of the capital market in today's complex business environment, which increase audit risk and litigation risk, and can be effective in explaining audit fees. The purpose of this research is to investigate the role of legal claims risk, information ...
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Information asymmetry and economic uncertainty are features of the capital market in today's complex business environment, which increase audit risk and litigation risk, and can be effective in explaining audit fees. The purpose of this research is to investigate the role of legal claims risk, information asymmetry and economic uncertainty in explaining audit fees. The time domain of the research is the period from 2013 to 2021 and the research sample includes 120 companies listed on the Tehran Stock Exchange. Research findings, based on analysis using multivariable regression models on combined data, show that among the macroeconomic variables investigated (including economic growth rate, inflation rate, exchange rate, and interest rate), both economic growth rate and inflation rate have a direct and significant relationship with the audit fee. Additionally, there is a direct and significant relationship between the risk of lawsuits and information asymmetry with the audit fee. The results indicate that the risk of lawsuits, economic uncertainty and information asymmetry play an effective role in explaining auditors' fees. IntroductionAudit fees indicate the amount of auditors' effort to reduce the audit risk to the reasonable level. It is a measure to control financial risk and some legal claims that are threatening audit firms. According to litigation risk, auditors try to control this risk by increasing their efforts and audit fees. Chen (2019) and Frino et al. (2022) state that information asymmetry and economic uncertainty increase audit risk and litigation risk, and can influence audit fees. In other words, audit services are necessitated by the conflict between shareholders and managers. Information asymmetry and economic uncertainty increase agency costs, thereby heightening the necessity for auditing to control and manage these costs. Consequently, auditors increase audit fees to manage audit risks and ensure the thoroughness of their audit work. Therefore, this research aims to explain the effect of litigation risk, information asymmetry, and economic uncertainty on audit fees. MethodologyOur data were collected using financial statements, notes, and audit reports in CODAL[1] database and Rahavard-e-Novin[2] software. The final sample for a period of 2013-2021 consists of 1080 firm-year observations. In addition, the GARCH models were employed to measure the independent variables. To test the first and second hypotheses of this research, model 1 is used:Afeet= litig riskt+ Asymmetryt+ Sizet+ INVRECt +Levt + ROAt+ losst+ CHANGEt +Adu sizet + Specialistt+ LIQUIDt + SALEt +Year Effects+ Industry Effects (1)To test the third hypothesis of research, model 2 is used:Afeet= Economic Growtht-1+ Inflation Ratet-1+ Exchange Ratet-1+ Interest Ratet-1+ Sizet+ INVRECt +Levt + ROAt+ losst+ CHANGEt +Adu sizet + Specialistt+ LIQUIDt + SALEt +Year Effects+ Industry Effects (2)Where, SIZE represents the natural logarithm of total assets; INVREC denotes the amount of inventory and receivables divided by total assets; Lev indicates total liabilities divided by total assets; ROA signifies net profit divided by total assets; LOSS is assigned 1 if a firm has experienced a loss in any of the last three years, and 0 otherwise; CHANGE is assigned 1 if a firm has changed its auditor, and 0 otherwise; LIQUID represents current assets divided by total assets; SALE represents the ratio of sales to assets; Adu size is a dummy variable that equals 1 if the audit firm was either the Iran Audit Organization (IAO) or Mofid Rahbar (an audit firm belonging to IACPA), and 0 otherwise. SPECIALISR is assigned 1 if the auditor is an industry specialist, and 0 otherwise. Audit Fee (AFEE): is the natural logarithm of the audit fee.Information Asymmetry (Asymmetry): According to the model of Venkatesh and Chiang (1986).Economic Uncertainty (RM): Economic uncertainty is the inability of agents to accurately predict the outcomes of decisions. In this research, it has been measured by four indicators, including the fluctuation of economic growth, inflation rate, exchange rate, and interest rate. In addition, a GARCH model was used to index these criteria. For this purpose, a volatile measure of changes in the Gross National Product (GNP) index was considered to be an indicator of the risk of macroeconomic factors that the firm faces in its financial and production decisions. The results of the estimation of the GARCH model led to conditional variances, which ultimately lead to the standard deviation or the concept of uncertainty upon taking the square root.Litigation Risk (Litig risk): We measure this variable based on Lowry and Shu (2002), Krishnan and Zhang (2005), and Sun and Liu (2011). ConclusionThe results of testing the first and second hypotheses indicate that the risk of lawsuits and information asymmetry have a positive and significant relationship with audit fees. In the third hypothesis, the effect of lack of economy on remuneration was investigated. In this research, four indicators including economic growth, inflation rate, exchange rate, and interest rate have been used to measure the economic uncertainty of macroeconomic variables. In this regard, the results of the hypothesis testing show that economic uncertainty based on inflation and economic growth criteria has a positive and significant relationship with audit fees. Additionally, economic uncertainty based on interest rate criterion has a negative and significant relationship with audit fees. However, the exchange rate indicator does not have a significant effect on audit fees. Therefore, it can be seen that audit risk as an indicator of determining audit fees is influenced by some economic variables such as inflation and economic growth.In order to strengthen the results and address potential endogeneity in the research models, we redefined the dependent variable as imaginary (bivariate) and re-estimated the initial models of all three hypotheses. The results of these re-estimations confirmed the findings of the least squares regression in the first model for the first and second hypotheses. In the third hypothesis regarding economic uncertainty, economic growth and inflation rate criteria, as well as exchange rate, lead to an increase in the audit fee, while interest rate causes a decrease in the audit fee. Additionally, new control variables were added to the initial models based on the information provided in previous sections. The results of these additions confirm the findings of the initial estimation of the hypotheses.
Financial Accounting
Mosa Bozorg Asl; mohamad marfo; mahdi mahannejad
Abstract
Linguistic features of information provided by business unit management could facilitate the goals of the transmission of economic facts. In recent years, these characteristics have always been considered in research in the field of accounting and behavioral finance. Therefore, this study seeks to examine ...
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Linguistic features of information provided by business unit management could facilitate the goals of the transmission of economic facts. In recent years, these characteristics have always been considered in research in the field of accounting and behavioral finance. Therefore, this study seeks to examine the effect of financial reporting tone on audit fees. The sample consists of 63 companies listed in Tehran Stock Exchange for the period from 2012 to 2019. Financial reporting tone is measured using the model introduced by Muhammad et al (2019). Also, a natural logarithm is used to measure audit fees. The data are analyzed and the hypotheses are tested based on the multivariate regression model and panel data. The findings show that financial reporting tone has a significant negative effect on audit fees. In other words, if the financial reporting tone conveys an optimistic tone, the audit fee will be less. Results indicate that financial reporting tone reflects factors that auditors consider in assessing audit risk.
Accounting report
Mojtaba Golmohammadi shuraki; Abolfazl Zare Mehrjardi
Abstract
Audit fee, which is one of the signs of an audit effort, is an important factor in the acceptance or rejection an audit by owners and auditors. The characteristics of the client and especially the characteristics of financial reporting are important factors that can affect the timing of the audit and ...
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Audit fee, which is one of the signs of an audit effort, is an important factor in the acceptance or rejection an audit by owners and auditors. The characteristics of the client and especially the characteristics of financial reporting are important factors that can affect the timing of the audit and subsequently the audit fee. The main purpose of this research is to investigating the relationship between accounting comparability (as qualitative financial reporting characteristic) and audit fees. For this purpose, a sample of 70 companies listed in Tehran Stock Exchange between 2015 and 2019 has been studied. Research hypotheses have been tested using regression analysis based on cross-section data. Evidence research shows that there is a negative and significant relationship between the accounting comparability and audit fees. This conclusion can be interpreted in terms of inherent risk of audit and information efficiency, because accounting comparability reduces audit risk and evidence acquisition costs. Also, the results show that there is a significant negative relationship between comparability and audit delay. In addition, the results suggest that there is not a significant negative relationship between audit fees and board independent, ownership concentration and institution ownership as corporate governance mechanisms.
Financial Accounting
Roohollah Arab; Mohammad Gholamrezapoor; Narjes Amirnia; Seyed pouria Kazemi
Abstract
According to the of alignment and entrenchment theories, the CEO power may lead to a reduction audit fees by increasing the earning quality and reducing audit risk, or through opportunistic earnings management and fraudulent financial reporting can lead to increased agency problems and audit risk, and ...
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According to the of alignment and entrenchment theories, the CEO power may lead to a reduction audit fees by increasing the earning quality and reducing audit risk, or through opportunistic earnings management and fraudulent financial reporting can lead to increased agency problems and audit risk, and ultimately to increased audit fees. Therefore, the purpose of the this study is to investigate the relationship between CEO power and audit fees and study the moderating effect of family ownership on this relationship with respect to alignment and entrenchment theories. To test the research hypotheses, the financial information of 88 companies listed on the Tehran Stock Exchange in the period between 2012 to 2019 has been used. The results of statistical tests show that there is a negative and significant relationship between CEO power and audit fees. In addition, the results showed that family ownership also moderated and exacerbated the relationship between CEO power and audit fees.
Ali Ebrahimi Kordlar; Musa Javani Ghalandari; Kianoosh Ganji
Abstract
Existing theories predict two contradict relation between industry competition and audit fees. Industry competition reduces the agency problem between manager and stockholder of firms and also increases the accuracy of financial statement. It therefore decreases the assessment of risk by auditors and ...
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Existing theories predict two contradict relation between industry competition and audit fees. Industry competition reduces the agency problem between manager and stockholder of firms and also increases the accuracy of financial statement. It therefore decreases the assessment of risk by auditors and they are inclined to charge low audit fee for companies operating in competitive industry. On the other hand industry competition can increase the assessment of business risk by auditor, so it would be expected as the competition in industry rises the audit fee, the current study examine empirically "The impact of monopoly or industry competition on pricing of external audit services "with the information of 96 publicly-held companies listed in Tehran Stock Exchange (TSE) Between 2009-2016. The result of study shows the significant and negative relation between audit fee and industry competition. In other words, auditor charge low audit fee for client which operate in high competitive industry.
Ali Ebrahimi kordlar; Musa Javani Ghalandari; Kianoosh Ganji
Abstract
Existing theories predict two contradict relation between industry competitiveness and audit fees. Industry competitiveness reduces the agency problem between manager and stockholder of firms and also increases the accuracy of financial statement. Therefore decrease the assessment of risk by auditors ...
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Existing theories predict two contradict relation between industry competitiveness and audit fees. Industry competitiveness reduces the agency problem between manager and stockholder of firms and also increases the accuracy of financial statement. Therefore decrease the assessment of risk by auditors and they are inclined to charge low audit fee for companies operate in competitive industry. On the other hand industry competitiveness can increase the assessment of business risk by auditor, so it would be expected as the competitiveness in the industry rise the audit fee increase, the current study examine empirically "The impact of monopoly or industry competition on pricing of external audit services "with the information of 96 publicly-held companies listed in Tehran Stock Exchange (TSE) Between 2009-2016. The result of study shows the significant and negative relation between audit fee and industry competitiveness. In other words, auditor charge low audit fee for client which operate in high competitive industry.
