Overconfidence and audit fees: does the fiscal council influence this relationship?

Abstract

Purpose: This study aims to investigate the role of fiscal council as a mechanism capable of changing the manager's ability to influence audit fees.
 Methodology: 231 observations of publicly-held companies that traded their shares on [B]³ in 2017 were analyzed. To investigate the relationship object of this study, an analysis was performed using multiple linear regression with the OLS estimator.
 Results: In the analyzed sample, it was identified that managers' overconfidence increases audit costs, which is consistent with the argument that managers' overconfidence can increase the risk of material error. However, possibly due to characteristics of the emerging environment or different levels of efficiency of the fiscal council, it was not possible to confirm the hypothesis that the fiscal council exerts a significant influence on the relationship between manager overconfidence and audit fees.
 Study Contributions: In the empirical field, this research provides subsidies for investors and regulators regarding the role of governance mechanisms - more specifically the fiscal council - in the relationship between the auditor and the client. From a theoretical perspective, the accounting literature is added to fill in the existing gap about the consequences of behavioral biases of managers on the audit fees under the moderation of the supervisory board.