Examining auditing fees change from free cash flow viewpoint

Abstract

This research mainly aimed at examining the relationship between free cash flow and auditing fees. It is required to mention that the mangers of free cash flow do not invest the commercial units in projects with positive NPV based on the theory of contradictory interests of managers and owners. In this research, the companies were divided into two lower and upper classes and model of auditing fees and artificial variable of free cash flow (FCF) and debt ratio of divided interest was used. In order to collect the required data and test the hypotheses, information stipulated in financial statements and notes of 50 companies and market information, Rahavard Novin software, Tadbir Pardaz softer, Sahra softer, stock organization library and stock sites such as www.rdis.ir and www.irbourse.com were used. Accessible extra cash amounts for investment is effective and agency problems of free cash flow damage the value as a result of probable increase in investment. Also, the contradiction of the interests between shareholders and managers may be intensified in companies with high free cash flow and low growth view. Obligations may result in increasing auditors’ attempts, auditing risk and effort, auditing fees, and applying them may raise some questions about management credit. This research provided a good chance for examining the effect of some charges of free cash flow agency regarding auditing wage. Meanwhile, it took into consideration whether other control mechanisms such as debt divided interest have any effect on auditing fees and auditors or not. Key words: Auditing fees, free cash flow, agency problems.