Empirical Studies in Financial Accounting

Current Issue

By Issue

By Author

By Subject

Author Index

Keyword Index

About Journal

Aims and Scope

Publication Ethics

Indexing and Abstracting

Related Links

FAQ

Peer Review Process

Journal Metrics

News

Memorandum of Understanding

Article Writing Guide

Files

Consultants

Consultants

Consultants

Consultants

Consultants

Publons

The tone in the auditor's report and the audit fee with emphasis on the moderating role of the requirements of Auditing Standard No. 700

Document Type : Research Paper

Authors

1 Instructor of Accounting Dept., Kosar University of Bojnord, Bojnord, Iran

2 Associate Professor of Accounting Dept., Ferdowsi University of Mashhad, Mashhad, Iran

3 Instructor of Accounting Dept., Kosar University of Bojnord, Bojnord, Iran,

Abstract

In the present study, the relationship between the qualitative information of the auditor's report and the quality of accounting has been discussed. In particular, the relationship between the tone of the auditor's report and the audit fee (audit quality criterion based on the input of the audit process) has been examined with respect to the concepts of risk, client business risk, and litigation risk. To test the research hypotheses, 360-year-firms data of Iranian Stock Exchange were used during a period of 6-years, three years before and three years after the revision of Auditing Standard No. 700. Textual data were analyzed using Maxqda10 text analysis software and after quantification along with other quantitative data were analyzed using multivariate linear regression in Ives software and SPSS Eviews 9. The results indicate a weak inverse relationship between the optimistic tone and the audit fee variable. In addition, the findings showed that the acceptance of the requirements of Auditing Standard No. 700 does not make significant changes in the relationship between the tone of the auditor's report and the remuneration compared to the period before the review. In general, the results of the research indicate evidence of the predominance of the signaling effect (albeit poorly) in the sample.

Keywords

Main Subjects

References
  1. Abernathy, J. L., Guo, F., Kubick, T. R., & Masli, A. (2019). Financial statement footnote readability and corporate audit outcomes. Auditing: A Journal of Practice and Theory, 38, 1–26.
  2. Bell, T. B., Landsman, W. R., & Shackelfor, D. A. (2001). Auditors’ perceived business risk and audit fees: analysis and evidence. Journal of Accounting Research, 39, 35-43.
  3. Bicudo de Castro, V., Gul, F. A., Muttakin, M. B., & Mihret, D. G. (2019). Optimistic tone and audit fees: some Australian evidence, International Journal of Auditing, 23,352–364.
  4. Blanco, B., Coram, P., Dhole, S., & Kent, P. (2020). How do auditors respond to low annual report readability? Journal of Accounting and Public Policy, 40,
  5. Chao, C. L.(2022). CEO turnover and audit pricing: the role of media tone, Managerial Auditing Journal, 37(6), 721-741.  https://doi.org/10.1108/MAJ-03-2021-3061.
  6. Chen, L., Krishnan, G., & Pevzner, M. (2012). Pro forma disclosure, audit fees, and auditor resignations. Journal of Accounting Public Policy, 31, 237-257.
  7. Davis, A. K., Piger, J., & Sedor, L. M. (2008). Beyond the numbers: managers’ use of optimistic and pessimistic tone in earnings press releases. Working paper of University of Oregon.
  8. Davis, A., Piger, J., & Sedor, L. (2012). Beyond the Numbers: Measuring the Information Content of Earnings Press Release Language. Contemporary Accounting Research, 29(3), 845-868.
  9. DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2), 275-326.
  10. Gayno, L. M., Kelton, A. S., Mercer, M., & Lomba, T. (2016). Understanding the Relation between Financial Reporting Quality and Audit Quality. AUDITING: A Journal of Practice & Theory, 35(4),1-22.
  11. Ghosh, A., & Pawlewicz, R. (2009). The impact of regulation on audit fees: Evidence from the Sarbanes-Oxley Act. Auditing: A Journal of Practice and Theory, 28, 171-197.
  12. Greiner, A., Patelli, L., &. Pedrini, M. (2020). Characteristics of managerial tone priced by auditors: evidence based on annual letters to shareholders of large US firms. Auditing: A Journal of Practice and Theory, 39, 139–161.
  13. Gul, F. A., & Tsui, J. (2001). Free cash flow, debt monitoring, and audit pricing: further evidence on the role of director equity ownership. Auditing: A Journal of Practice & Theory, 20, 71-84.
  14. Hay, D., Kneche, W., & Wong, N. (2006). Audit Fees: A Meta-analysis of the Effect of Supply and Demand Attributes. Contemporary Accounting Research, 23(1), 141-191.
  15. Hossain, M., Hossain, M., Mitra, S., & Salama, F. (2019). Narrative disclosures, firm life cycle, and audit fees, International Journal of Auditing, 23, 403–
  16. Huang, X., Teoh, S. H., & Zhang, Y. (2014). Tone management. The Accounting Review, 89 (3), 1083-1113.
  17. Kothari, S. P., Li, X., & Short, J. E. (2009). The effect of disclosures by management, analyst, and business press on cost of capital, return volatility, and analyst forecasts: a study using content analysis. The Accounting Review, 84(5), 1639-1670.
  18. Krishnan, j., & Krishnan, j. (1997). Litigation risk and auditor resignations. The Accounting Review, 72 (4), 539-560.
  19. Li, F. (2006). Do stock market investors understand the risk sentiment of corporate annual reports? Working paper of Michigan University.
  20. Li, F. (2010). The information content of forward-looking statements in corporate filings – A naïve bayesian machine learning approach. Journal of Accounting Research, 48(5), 1049-1102.
  21. Liu, Z. (2015). MD&A Disclosure Tone and Audit Pricing. Thesis in Ph.D., Accounting, Drexel University.
  22. Loughran, T., & Mcdonald, B. (2016). Textual Analysis in Accounting and Finance: A survey. Journal of Accounting Research, 54(4), 1187-1230.
  23. Loughran, T., & McDonald, B. (2011). When is a liability not a liability? Textual analysis, dictionaries, and 10‐Ks. Journal of Finance, 66, 35–65.
  24. Loughran, T., & McDonald, B. (2016). Textual analysis in accounting and finance: a Journal of Accounting Research, 54, 1187–1230
  25. Lyon, J., & Maher, M. (2005). The importance of business risk in setting audit fees: evidence from cases of client misconduct. Journal of Accounting Research, 43, 133-151.
  26. Malik, M. F., Shan, Y. G., & Tong, J. Y. (2021). Do auditors price litigious tone?. Accounting and Finance, 62 (S1), 1715-1760. https://doi.org/10.1111/acfi.12837.
  27. Mock, T. J., Bédard, J., Coram, P. J., & Davis, S. M. (2013). The audit reporting model: Current research synthesis and implications. Auditing: A Journal of Practice and Theory, 32(1), 323-351.
  28. Reynolds, J. K., & Francis, J. R. (2000). Does size matter? The influence of large clients on office-level auditor reporting decisions. Journal of Accounting and Economics, 30(3), 375-400.
  29. Rogers, J. L., Buskirk, A., & Zechman, S. L. (2011). Disclosure tone and shareholder litigation. The Accounting Review, 86(6), 2155-2183.
  30. Seetharaman, A., Gul, F. A., & Lynn, S. G. (2002). Litigation Risk and Audit Fees: Evidence from UK firms Cross-Listedon US Markets. Journal of Accounting and Economics, 33, 91-115.
  31. Simunic, D. A., & Stein, M. T. (1996). Impact of litigation risk on audit pricing: A review of the economics and the evidence. Auditing: A Journal of Practice and Theory, 15, 119-134.
  32. Simunic, D. (1980). The Pricing of Audit Services: Theory and Evidence. Journal of Accounting Research, 22(3),161-190.
  33. Stanley, J. (2011). Is the Audit Fee Disclosure a Leading Indicator of Clients’ Business Risk? Auditing:A Journal of Practice and Theory, 30(3), 157-179.
  34. Vanstraelen, A., Schelleman, C., Hofmann, I., & Meuwissen, R. (2011). A Framework for Extended Audit Reporting, Maastricht Accounting, Auditing and Information Management Research Center (MARC).
  35. Venkataraman, R., Weber, J., & Willenborg, M. (2008). Litigation Risk, Audit Quality, and Audit Fees: Evidence fromInitial Public Offerings. The Accounting Review, 83, 315–1345.
  36. Yang, R., Yu, Y. Liu, M. & Wu, K. (2018), Corporate risk disclosure and audit fee: a text mining approach, European Accounting Review, 27, 583–
  37. Yao, S., Pan, L. & Zhang, Z. (2020). Does environmental disclosure have an auditing effect? Managerial Auditing Journal, 35, 43–
  38. Bagheri Azghandi, A., Hesarzadeh, R., & Abbaszadeh, M.R. (2018). Readability of Financial Statements and the Sensitivity of Investors to Use of Accounting Information. Financial Management Perspective, 8(23) , 87-103. [In Persian]
  39. Bozorg Asl, M., Marfo, M., & Mahannejad, M. (2021). The Effect of Financial Reporting Tone on Audit Fees of Listed Companies in Tehran Stock Exchange. Empirical Studies in Financial Accounting, 18(72), -. doi: 10.22054/qjma.2021.57363.2211. [In Persian]
  40. Baghoumian, R., arabzadeh, A., & fakhri ghurmik, J. (2017). The Information Content of Audit Opinion with Emphasis on Auditor’s and Client’s Sizes. Journal of Iranian Accounting Review, 4(16), 1-28. doi: 10.22055/jiar.2018.24205.1171. [In Persian]
  41. Ebrahimi Kordlar, A., Javani Ghalandari, M., & Ganji, K., (2017), the Impact of Monopoly or Industry Competition on Pricing of External Audit Services. Empirical Studies in Financial Accounting, 13(52). 149-178. DOI: 22054/QJMA.2017.7740. [In Persian]
  42. Ghadimpoor, J., & Dastghir, M. (2016). Investigating the Effects of Litigation Risk Factors on Audit Fee. Journal of Financial Accounting Research, 8(4), 37-54. [In Persian]
  43. Gholami Moghaddam, F., Hesarzadeh, R., & Saei, M. (2018). Word – Based Measures and Conventional Measures of Fraud in Financial Reporting: Evidence from an Exploratory Study. Financial Management Strategy, 6(1), 73-92. [In Persian]
  44. Imani, M., Abdi, M., & Kazemi Olum, M. (2017). Investigating the Impact of Gender Diversity in the Audit Committee on the Audit Fees of Companies Listed in Tehran Stock Exchange, Accounting and Auditing Review, 24 (3), 303-322. [In Persian]
  45. Kordestani, G., Rezazadeh, J., Kazemi Olum, M., & Abdi, M. (2018). The Investigation of Audit Market Concentration Impact on Audit Fees and Audit Quality. Journal of Financial Accounting Research, 10(2), 65-84. [In Persian]
  46. Mehrabanpour, M., Jandaghi Ghomi, M., & Rajabbeyki, M. (2018). Social Capital and Audit Fees. Accounting and Auditing Review, 25(2), 269-288. [In Persian]
  47. Mirali, M., Gholami Moghaddam, F., & Hesarzadeh, R. (2018). Investigation of the Relationship between Financial Reporting Tone with Future Corporate Performance and Market Return. Journal of Financial Accounting Knowledge, 5(3), 81-98. [In Persian]
  48. Pezeshk, Y., & Pourzamoni, Z. (2019). Audit Seasonality, Information Disclosure Quality and Audit Quality. Journal of Management Accounting and Auditing Knowledge, 8(29), 57-70. [In Persian]
  49. Sadraei, G. S., MohammadRezaei, F., Gholami Jamkarani, R., & Faraji, O. (2022). Audit Fee: Early Evidence about the Role of Some Omitted Variables. Journal of Accounting Knowledge, 13(1), 97-120. doi: 10.22103/jak.2021.17928.3536. [In Persian]‌
Empirical Studies in Financial Accounting
Volume 19, Issue 76
March 2023
Pages 131-161
Files
History
  • Receive Date: 23 May 2022
  • Revise Date: 21 November 2022
  • Accept Date: 24 December 2022
Share
How to cite
Statistics