Audit Fees Research Articles

The effect of restatements on office-level audit quality

PurposeThis study aims to provide evidence on how the issuance of a nonreliance restatement affects non-restating clients of the same audit office.Design/methodology/approachTo test the effect of restatement issuance on office-level quality, this study runs regressions using both input- and output-based measures of audit quality.FindingsThis study finds that in the years where one or more clients of an audit office issue a restatement, audit effort is lower for non-restating clients of the same office. When two or more clients issue a restatement, other clients are charged lower audit fees, file later and are more likely to experience an audit failure.Originality/valueThis study contributes to the literature on office-level audit quality and provides an explanation for the longitudinal correlation of office-level audit failures.

PENGARUH PROSEDUR, FEE DAN PROFESIONALISME AUDIT TERHADAP KUALITAS AUDIT DENGAN REMOTE AUDIT SEBAGAI VARIABEL MODERASI STUDI EMPIRIS PADA KANTOR AKUNTAN PUBLIK DI JAKARTA SELATAN

This study aims to determine Procedures, Audit Fees and Professionalism on Audit Quality with Remote Audit Moderating Variables (Study at Public Accounting Firm in South Jakarta). This research method is included in quantitative research with the type of primary data source and uses attribution theory and positive accounting theory. The population in this study were public accounting firms in the South Jakarta area and the samples in this study were partners, supervisors, managers and seniors who worked at public accounting firms in the South Jakarta area. The number of samples in this study were 92 respondents. Data analysis in this study used the SmartPLS (Partial Least Square) Version 4.0 data analysis method. Procedures have a significant effect on audit quality, audit fees have a significant effect on audit quality, and professionalism has a significant effect on audit quality. Meanwhile, remote audit has no significant effect on moderating the relationship between procedures and audit quality, remote audit is unable to moderate the relationship between audit fees and audit quality. In addition, remote audit is able to moderate the relationship between professionalism and audit quality.

Factors Influencing the Audit Quality of the Municipalities

The study aims to analyze the Audit Quality (AQ) factors that were perceived to be necessary by the accountants and internal auditors in municipalities of Palestine. A survey of 309 accountants and internal auditors from 155 Palestinian municipalities was conducted. The questionnaire data was statistically analyzed using Smart PLS3 software. The study discovered that auditor ethics, independence, and competence were the most significant elements in determining AQ. Meanwhile, Internal Auditing (IA), Accounting Basis (AB), and the Laws and Regulations (LR) have a moderate effect. However, the least crucial factors were Audit Fees (AF) and Audit Firm Size (AFS). The study is limited by the survey questionnaire method’s general limitations and the perceptions of accountants and internal auditors. It offers evidence on AQ from Palestine, helps the audit firms distinguish their marketing and service delivery strategies, and understands the AQ aspects sought by those clients. Moreover, the study provides the municipal councils and the regulators of the municipalities with greater knowledge on how to select the best auditors and maintain internal control measures, notably IA and the use of the accrual basis in accounting procedures. Since the findings are generally consistent with previous studies, more emphasis can be placed on the effectiveness of municipal internal control.

Labor Costs of Implementing New Accounting Standards

SYNOPSIS Although much research focuses on informational benefits of new accounting standards, the costs of implementing them remain largely unexamined. We consider one such cost in the adoption of two recent standards: lease accounting and revenue recognition. We find an increase in the number of job postings demanding skills related to accounting for those standards around their issuance. Firms most affected by new standards, measured by accounting complexity and early adoption behavior, post more accounting jobs. Using job postings as a proxy for hiring, we estimate incremental labor costs at about 30 percent of median audit fees for each standard for the most affected firms. Our tests indicate greater regulatory compliance burden for smaller firms. We provide large-sample evidence on the lower bound for the costs of implementing new accounting standards. Our findings should interest standard setters as they evaluate the cost-benefit tradeoffs of issuing new standards. Data Availability: Data are commercially available from the sources cited in the text. JEL Classifications: J23; M41; M51.

How Did the COVID-19 Pandemic Affect Audit Fees and Filing Delays?

How Did the COVID-19 Pandemic Affect Audit Fees and Filing Delays?

THE ASSOCIATION BETWEEN AUDIT FEE AND AUDIT QUALITY: A META-ANALYSIS STUDY

Introduction: This study aims to reconcile conflicting empirical results from previous studies on the relationship between audit fees and audit quality. In addition, it investigated whether the contradictory findings were moderated by different types of audit fees and audit quality measures. The study also makes cross-country comparisons of empirical evidence to provide more insights. Methods: This study utilized meta-analysis to integrate the findings of previous studies on the relationship between audit fees and audit quality and further investigated moderators of the association. Results: The findings revealed that audit fees had a positive effect on audit quality. These results were observable for both developed and developing countries, indicating the beneficial consequences of audit fees on audit quality should not be overlooked. Furthermore, this study also found that the size of audit fees and quality moderated the positive influence of audit fees on the quality. Conclusion and suggestion: This study contributes to the stream of research investigating the relationship between audit fees and audit quality. To the best of our knowledge, this study represents one of the pioneering efforts to apply statistical meta-analysis to the issue addressed.

The impacts of federal judge ideology on auditor litigation risk and auditor behavior

AbstractIn this paper, we investigate whether federal judge ideology, ceteris paribus, affects auditor litigation risk and auditor behavior. We find that auditors whose client firms are in jurisdictions dominated by liberal judges are more likely to be sued and make higher payouts to plaintiffs when sued. Furthermore, these client firms are more likely to receive going‐concern opinions and pay higher audit fees. Finally, we find no evidence that the quality of audited financial statements is affected by judge ideology. The evidence documented in this paper indicates that federal judge ideology affects auditor litigation risk and some aspects of auditor behavior.

Pengaruh Arus Kas Bebas dan Efektivitas Komite Audit Terhadap Kualitas Audit

Good audit quality is an important factor in ensuring the integrity and reliability of an entity's financial reports. This research aims to examine the influence of free cash flow and audit committee effectiveness on audit quality. Free cash flow reflects the availability of financial resources for a company to finance operational and audit activities. Meanwhile, an effective audit committee can ensure adequate oversight of the financial reporting and audit processes. This research uses panel data which includes companies listed on the Indonesia Stock Exchange during the 2018-2022 period. Free cash flow is measured using the ratio of operating cash flow to total assets, while audit committee effectiveness is measured using a composite score that includes the audit committee's independence, expertise and activities. Audit quality is assessed based on proxies such as the size of the public accounting firm, auditor industry specialization, and audit fees. The research results show that free cash flow and audit committee effectiveness have a significant positive influence on audit quality. Companies with high free cash flow tend to have adequate resources to pay higher audit fees, thereby encouraging auditors to carry out a more in-depth and quality audit process. In addition, an effective audit committee can ensure good oversight of the financial reporting and audit process, thereby improving audit quality. These findings provide important implications for companies and regulators in improving audit quality through managing free cash flow and establishing effective audit committees. Future research can explore other factors that influence audit quality and include relevant control variables.

The bright side of flight delay: How do flight delays affect auditing quality?

Purpose This study explores how auditors' emotions, specifically negative moods triggered by flight delays, impact auditing quality.Design/methodology/approach Utilizing flight delays during audit assignments as a mood indicator, weather conditions at departure airports serve as an instrumental variable to provide a robustness check between flight delays and audit outcomes, employing a two-stage least squares model.Findings The findings suggest that such negative moods improve auditing effort and quality, as evidenced by reduced future accounting restatements and increased audit fees. The positive effect of flight delays on auditing quality is consistent across different tests and measures.Originality/value This study highlights the significance of auditors' emotional states on their professional performance, indicating a unique angle on auditing quality research by focusing on the emotional well-being of auditors as influenced by external factors such as flight delays.

Institutional investors’ distraction and audit fees: The mediating effect of ESG rating disagreement

Institutional investors’ distraction and audit fees: The mediating effect of ESG rating disagreement

Spillover effect of digital transformation along the supply chain: From the perspective of suppliers’ audit fees

This research contributes to understanding the spillover effect of customer digital transformation along the supply chain. We take a supply chain relationship perspective to explore the influence of customers’ digital transformation on suppliers’ audit fees and find a significant reduction in such fees when customers undergo digital transformation. An economic mechanism analysis reveals that this transformation reduces audit fees by lowering the risks and costs encountered by auditors. This is achieved by mitigating suppliers’ business risks and improving earnings quality. Heterogeneity analysis reveals that the impact of customers’ digital transformation on suppliers’ audit fees is more pronounced when the supply chain is geographically distant, suppliers with more specific investments and with high levels of market competition.

How female leadership and auditor affiliations shape audit fees: evidence from Egypt

Purpose This study aims to examine how female directors on corporate boards and audit committees, and auditor affiliations (Big 4 versus Egyptian firms affiliated with foreign auditors), influence audit fees. This examination is driven by the global call for increased female representation in leadership roles and its potential implications for audit quality and financial transparency. Design/methodology/approach A sample of non-financial companies listed on the Egyptian Stock Exchange is used for the period 2011–2020. The authors used multivariate regression models, the Heckman two-stage and tokenism to support the analysis. Findings The results are threefold. First, this analysis reveals that female directors, whether on corporate boards or audit committees, are more likely to choose higher-quality audits in the form of high audit fees. Second, both Big 4 firms and Egyptian audit firms affiliated with foreign auditors are positively associated with audit fees and earn significant audit fee premiums. Third, a minor difference in audit fee premiums could be attributed to the existence of female directors. Research limitations/implications Future research may expand the analysis performed in this study by investigating the characteristics related to female directors (e.g. education, experience and age) on audit fees. Practical implications This study suggests insights for regulatory bodies, corporate decision-makers, auditors and corporate governance researchers. For instance, this study reveals that the Big 4 are not homogenous and provide different audit quality levels along with significant audit fee premiums. Originality/value This study extends and contributes to the growing literature on female representation in corporate leadership. First, this study adds to the limited research in Egypt by examining the effect of female board representation on audit quality. Second, this study adds to the extant literature on the gender of financial experts by demonstrating that female financial expert is more likely to demand high-quality audits. Finally, the results have significant implications for policymakers. For instance, this study reveals that the Big 4 are not homogenous and provide different audit quality levels along with significant audit fee premiums.

An Examination of the Terminal Year in an Auditor-Client Relationship

SYNOPSIS We examine the cost and consequences of switching auditors. Specifically, we consider several client costs (audit fees, going-concern opinions, and internal control opinions) in the last year of an audit engagement (“terminal year”). We find that outgoing auditors are more likely to charge higher audit fees, issue more going-concern opinions, and issue more adverse internal control opinions during the terminal years of their audits. These findings suggest that outgoing auditors gain greater bargaining power, are more likely to charge for additional hours of audit work, and are less likely to yield to client pressures. Overall, our results suggest that companies face real economic costs from the outgoing auditor in addition to the start-up costs of the incoming auditor. Data Availability: Data are publicly available from sources identified in the text. JEL Classifications: G31; G32; G33; M21.

Impact of husband and wife shareholdings on audit fees

This paper examines the impact of family firms' husband and wife shareholding on audit fees using family firms listed in A-share companies from 2002-2021 as a sample. The findings show that family firms' husband-wife shareholding significantly reduces audit fees. Further analysis shows that the effect of family firms' husband-wife shareholding on audit fees is more significant in companies with longer listing years and family firms with smaller losses. The mechanism test reveals that husband-wife shareholding in family firms leads to the misappropriation of funds by major shareholders and protects the truthfulness of the company's financial statements and business activities, which in turn reduces the audit fee. This study provides new ideas and empirical support for the role of husband-wife shareholding in corporate governance of family firms.

Navigating the impact: A comprehensive analysis of ESG disclosure consequences through systematic review

AbstractThe purpose of this article is to provide a comprehensive and systematic assessment of the literature on the consequences of environmental, social, and governance (ESG) disclosure by means of content analyses. Using a systematic approach, a sample of 165 studies was collected from the Web of Science database and evaluated on the basis of econometric and content analyses, including publication trends, geographical distribution, theories and consequence associated with ESG disclosure (investment and innovation of firms, financing cost and method, operations and financial risk of firms, firm performance and value and others), provides some direction for future investigation. According to the analysis, the literature was more interested in the stakeholder theory when examining the effects of ESG disclosure on areas including company innovation and investment, financing costs and methods, financial risk and operations, business performance, and others. Even though most of the literature has focused on firm performance and value, there is still no clear understanding of the relationship. Also, limited work was found on the investment and innovation of firms, and financing cost and method, while the impact of operations and financial risk of firms has yet to be explored. Meanwhile, this study also identified the impact of ESG disclosure on analysts, audit fees, and earnings management as a new research direction. Finally, this study innovates new findings that institutional pressures may have an impact on the consequences of ESG disclosure, a topic not found in previous studies.

Digital transformation, green innovation, and audit fees

Under the trend of synergistic development of digitalization and greening, this paper investigates the impact of enterprise digital transformation on audit fees and its mechanism, by using textual analysis and performing empirical tests on the data of Chinese listed companies from 2007 to 2021. It is found that enterprise digital transformation significantly increases audit fees, and green innovation partially mediates this process. The study results are robust, even after a series of robustness tests. When financing constraints and environmental regulations are low, the mediating role of green innovation between digital transformation and audit fees is more significant. In addition, green innovation has a stronger mediating role between the use of underlying technology and audit fees, while green substantive innovation has a stronger mediating role between digital transformation and audit fees. This study investigates the effect of enterprise digital transformation on audit fees from the standpoint of green innovation. It offers a new perspective on how accounting firms make audit pricing decisions, provides guidance for enterprise digital transformation and green innovation, and gives an opportunity for China to promote the synergistic transformation and development of digitalization and greening to achieve the dual-carbon goal.

Corruption and audit fees: New evidence from EU27 countries

This study examines the relationship between country‐level corruption and audit pricing decisions across EU27 countries. Using a sample of 29,607 firm‐year observations for the period 2011–2021, I find that firms headquartered in more corrupt countries pay higher audit fees and have longer reporting lags. I also show that this relationship is stronger after the EU audit reform came into force in 2016. The results suggest that auditors respond to corruption risk stemming from the broader macroeconomic environment by increasing audit fees and audit effort. In additional analyses, I show how the association between audit fees and corruption varies across firm industries, and I document that female engagement partners tend to be more sensitive to corruption risk than their male counterparts. Ultimately, I find unexpected evidence indicating that financial reporting quality, proxied by discretionary accruals, is not adversely affected by corruption. This study addresses prior calls for a more granular understanding of external factors in audit research and provides the first European evidence of the association between corruption and auditor responses. The implications of this study should be particularly relevant for researchers, market participants and regulators.

Climate change disclosure performance and audit fees: evidence from Australia

Purpose This study aims to examine the relationship between climate change disclosure performance (CCDP) and audit pricing. The moderating effect of corporate governance characteristics on that relationship is also investigated. Design/methodology/approach Using a sample of top 300 Australian Securities Exchange listed non-financial firms over the period 2008–2019, this study investigates the association between CCDP and audit fees. The findings are robust to a difference-in-difference test thereby alleviating potential endogeneity concerns. Findings CCDP is found to be significantly positively related to external auditor fees. Research limitations/implications The findings show some important implications for firm management, regulators, investors and auditors. This study presents empirical evidence that climate change, as a factor of external risk, influences audit fees. Practical implications Firms with governance structures characterized by larger more independent boards, larger audit committees and audit committees with a higher level of independence significantly moderate the relationship between CCDP and audit fees. Social implications Investors’ demand for firm transparency and disclosure of information regarding the risks of climate change, effects and opportunities has increased significantly over the past decade, as these factors could have a significant effect on valuation and investment decisions. Originality/value Importantly, stakeholders need to be aware of the costs of climate change, the quantification of climate change impacts and how firms address climate change in their business risk management processes. This study quantifies the impact of CCDP on auditor risk assessments via audit fees.

Drought risk and audit pricing: a mixed-methods study

PurposeClimate change has led to a rise in the frequency, intensity and scope of droughts, posing significant implications for businesses. This study examines the impact of local community drought levels on audit pricing. Additionally, it explores the moderating effects of high-tech industries, auditor busyness and the level of local community concern regarding the drought crisis.Design/methodology/approachThis study employs a mixed-methods approach to rigorously test the research hypotheses. The quantitative phase of the study utilizes a sample of 1,278 firm-year observations from Iran’s capital market. For the analysis of the quantitative data, ordinary least squares regression with clustered robust standard errors is used. Additionally, this research supplements its quantitative findings with qualitative evidence obtained through semi-structured interviews with 19 Iranian audit partners.FindingsThe results suggest that firms operating in provinces facing severe droughts experience notably higher audit fees. Furthermore, the positive relationship between drought and audit fees is weakened when auditors are busy, local community concern regarding the drought crisis is high or the firm operates within high-tech industries. These findings are supported by a range of robustness checks and qualitative evidence gathered from the field.Originality/valueThis research contributes to the growing literature on climate change by examining the influence of local community drought levels on audit pricing within an Iranian context. Additionally, our study sheds light on how high-tech industries, auditor workload and the level of local community concern regarding the drought crisis moderate the relationship between drought and audit fees. Importantly, our study pioneers in providing mixed-methods evidence of the association between drought severity and audit fees.

PENGARUH FEE AUDIT, FINANCIAL DISTRESS, KOMISARIS INDEPENDEN, DAN KOMITE AUDIT TERHADAP INTEGRITAS LAPORAN KEUANGAN

This research aims to examine the influence of audit fees, financial distress, independent commissioners and audit committees on the integrity of financial reports. Audit fees are measured using the natural logarithm of professional fees, financial distress is measured using the debt to equity ratio, independent commissioners are measured using the ratio of the number of members of the company's independent commissioners to the number of members of the company's board of commissioners, audit committees are measured using the comparison of the number of audit committees that come from from the independent committee with the number of audit committee members and the integrity of the financial reports as measured using the market to book ratio. This type of research is quantitative. Based on purposive sampling, the number of sample companies was 29 companies with an observation period of 5 years, so the total sample was 145 data on the property and real estate sectors listed on the Indonesia Stock Exchange (BEI) during the 2018-2022 period. The data analysis used in this research is a panel data regression model using E-Views 12. The results of this research show that partially audit fees and audit committees have no effect on the integrity of financial reports. Financial distress and independent commissioners have a significant effect on the integrity of financial reports. Meanwhile, simultaneously audit fees, financial distress, independent commissioners and audit committees influence the integrity of financial reports. Keywords: Financial Statement Integrity, Audit Fees, Financial Distress, Independent Commissioner, Audit Committee.