Audit fees
202268053
Seeing Is Believing? Executives' Facial Trustworthiness, Auditor Tenure, and Audit Fees
Abstract Psychology and neuroscience studies document that facial trustworthiness perceptions may affect observers' decision making process. Our study examines whether auditors' perceptions of client executives' facial trustworthiness are associated with their audit fee decisions. We employ a machine learning based face detection algorithm to measure executives' facial trustworthiness. We find that auditors charge 5.6% less audit fee to firms with trustworthy looking CFOs than to those with untrustworthy looking CFOs in initial audit engagements. Auditor tenure weakens the negative association between CFOs' facial trustworthiness and audit fee. Further evidence shows that CFO's facial trustworthiness is associated with neither financial reporting quality nor litigation risk.
Tien-Shih Hsieh Jeong-Bon Kim Ray R Wang Zhihong Wang
210144184
Independent audit committee, risk management committee, and audit fees
Abstract This study aims to analyze the role of an independent audit committee on the relationship between the Risk Management Committee (RMC) and audit fees. We use 510 observations from 216 different companies indexed on the Indonesia Stock Exchange for 2014 2016. This study uses ordinary least square analysis to prove our hypotheses. We find that participation of the independent commissioner as an audit committee member will strengthen the relationship between RMC and audit fee. Consistent with the demand side of audit theory, our study shows that the existence of a stand alone risk management committee and a more independent commissioner sitting on the audit committee will demand higher audit coverage. As a result, it will increase the audit fee. It occurs since the existence of a more independent audit committees could be able to objectively assess the risk as recommended by the RMC and respond to it by increasing the demand on audit coverage for higher audit quality, and hence increase the fees paid to the external auditor. These findings could contribute to the regulatory bodies in Indonesia in terms of providing empirical evidence on the relationship between board governance structure and audit pricing within non financial industries companies.
Dyah Ayu Larasati Melinda Cahyaning Ratri Mohammad Nasih Iman Harymawan
158233825
Managerial overconfidence, ability, firm governance and audit fees
Prior studies document that managerial overconfidence potentially increases the risk of financial misstatements, and that overconfident managers purchase lower quality audits and pay lower audit fees. As a part of the research that evaluates the information value of managerial characteristics to auditors, our study examines how the relationship between managerial overconfidence and audit fees is impacted by managerial ability, and board and audit committee effectiveness in the post Sarbanes Oxley (post SOX) environment. In general, we find a significantly positive relationship between managerial overconfidence and audit fees consistent with the supply side risk based perspective of audit pricing. However, this relationship is significantly attenuated in higher managerial ability firms where overconfident managers are better able to make proper accounting estimates and judgements required for producing reliable financial statements, and synthesize firm specific information into appropriate forward looking projections. We find that on an average, the overconfident firms with higher managerial ability pay 6.3% lower audit fees than the overconfident firms with lower managerial ability. Our analyses further show that board characteristics positively impact the relationship between managerial overconfidence and audit fees, suggesting that stronger board monitoring increases the demand for higher quality audits to mitigate the reporting risk of the overconfident firms. On an average, the firms with managerial overconfidence pay additional 9.3% higher audit fees when they are subject to stronger and more effective board oversight. However, we find weaker evidence on the effect of audit committee characteristics on audit fees of the overconfident firms. Our primary results hold for a battery of supplemental tests including the tests using propensity score matched sample. The study contributes to audit fee and corporate governance literature, and has useful implications for regulators, accounting practitioners, and auditors.
Santanu Mitra Bikki Jaggi Talal Al-Hayale
158582492
The puzzle of internal audit function budget toward specialist auditor choice and audit fees
PurposeThis study is motivated by the lack of internal audit function (IAF) research and by the call for research on the impact of dominant owners such as family shareholders on audit fees and the demand for audit quality. This study aims to examine the impact of the IAF budget on the selection of industry specialist auditors and on audit fees, particularly in companies with family controlled shareholders, a feature unique to Malaysia.Design/methodology/approachData of Malaysian listed companies during the period 2009 2012 are used. To examine the relationships, logit and ordinary least square regressions are used. Several additional analyses are conducted to assess the robustness of the main results, including alternative measures of specialist auditor and family ownership, endogeneity problems and self selection bias.FindingsThe results show that the IAF budget is positively related to hiring industry specialist auditors and audit fees. However, family companies are less likely to support the positive association between IAF costs and engage specialist auditors than non family companies. In addition, a complementary association between the costs of IAF and audit fees for both family and non family companies was found. Finally, the results show that there is a negative association between family ownership and the ratio of IAF costs to audit fees, suggesting that family companies rely more upon external auditing than internal auditing.Originality/valueThe contribution of this study is to provide an empirical evidence about the tradeoff between IAF and both industry specialist auditors and audit fees with considering the moderating impact of family ownership shareholdings. This issue is yet to be examined, and it provides implications for policymakers and practitioners, as it offers insights into the importance of investing in IAF toward hiring industry specialist auditors and pricing the audit services.
Managerial Auditing Journal
Adel Ali Al-Qadasi Shamharir Abidin Hamdan Amer Ali Al-Jaifi
69499106
Do Auditors Price Breach Risk in Their Audit Fees?
ABSTRACT Data security breaches have been shown in the literature to negatively affect firm operations. Auditors serve as an important, external governance mechanism with respect to a firm's overal.
J. Inf. Syst.
Thomas J Smith Julia L Higgs Robert E Pinsker
202350579
Does Audit Fees and Non Audit Fees Matters in Audit Quality?
The purpose of this paper is to examine the influence of audit fees and non audit fees on audit quality of the Public Listed Companies in Malaysia. The research is timely as recently, and many business cases have been exploded after an unqualified audit report issued on the financial statement of the company. The quantitative research approach and secondary data utilized for this study. Further, this study employs a cross sectional which the data collected from 201 listed company on Bursa Malaysia for the financial year ending in 2017. The results reveal that non audit fees (NAF) and audit fees (AF) have influenced the audit quality (AQ) The finding of this study conducive to auditing literature by enhancing the knowledge of audit scholars and able to assist policy maker such as the Malaysia Institute of Accountants (MIA) in developing new strategy or policies that can enhance the AQ.
KnE Social Sciences
Yuvaraj Ganesan Ranjani Narayanan Hasnah Haron Anwar Bin Allah Pitchay
67789830
Female Audit Committee Members and Their Influence on Audit Fees
We test the relationship between female representation on the audit committee and audit fees for 624 Australian companies in the year 2011. A positive relationship is found, leading to the conclusion that female presence on audit committees influences the quality of the external audit. Further, we find that gender is the significant audit committee characteristic in predicting audit quality and that women on the audit committee strengthen the positive relationship between firm size and audit fees, and between risk and audit fees. Conversely, we find that female representation dampens the positive relationship between complexity and audit fees.
Husam Aldamen Janice Hollindale Jennifer L Ziegelmayer
157995616
Related party transactions and audit fees: the role of the internal audit function
Related party transactions (RPTs) are viewed as genuine transactions that rationally fulfil other economic demands of a company. However, RPTs can also be used to transfer wealth from minority shareholders to controlling shareholders. The existence of such transactions may deteriorate financial reporting quality, increase audit risk, and as a result increase audit fees. This study examines the relationship between RPTs and audit fees in Malaysia, where ownership is often concentrated within a controlling family and corporate governance mechanisms are poor. It also investigates the moderating effect of the internal audit function (IAF) on this relationship. We find that external auditors base their fees on the types of RPTs undertaken. Specifically, our results show that audit fees are higher for firms that undertake RPTs involving the sale and purchase of assets, goods, and services. We also document that external auditors rely on the IAF, and thus their fees are lower for firms that undertake RPTs and that have made a large investment in an IAF. Our study is the first to provide evidence that RPTs in Malaysian firms may be abused as a channel to facilitate tunnelling and that the IAF plays a vital role in controlling such transactions.
Redhwan Ahmed Al-dhamari Bakr Al-Gamrh Ku Nor Izah Ku Ismail Samihah Saad Haji Ismail
158613881
Board monitoring and audit fees: the moderating role of CEO/chair dual roles
Purpose This paper aims to examine whether CEO/chair dual roles influence board monitoring audit fees nexus. The impact of corporate governance on audit fees literature is lacking in the banking sector, which is subject to different regulations and reporting requirements to other sectors. The level and quality of external audit services are important not only to shareholders and customers but also for regulators' reputations and public confidence. Design/methodology/approach Examining a sample of the US national commercial banks, this study fills the gap by empirically examining whether the attributes of internal corporate governance mechanisms, proxied by boards of directors and audit committee characteristics, are related to audit fees. We introduce two interaction variables to understand whether chief executive officer (CEO)/chair dual roles influence the relationships between board independence and audit fees on the one hand and between the audit committee and audit fees on the other hand. Findings We find that audit fees are positively associated with board independence, board size, CEO/chair dual role and audit committee financial experts. The results of the interaction variables indicate that boards with higher independence and more effective audit committees tend to demand higher audit quality, and consequently, pay higher audit fees to protect shareholders' interests from potential power abuse by CEOs who also chair boards. Originality/value This study contributes to the literature by providing extensive understanding of the influence on audit fees of the independence of the board of directors and the effectiveness of the audit committees. The authors first examine the impact of each individual governance variable separately and then introduce two interaction variables. This study provides policymakers with insights into the existing relationships between audit fees and the banking sector governance structure.
Mohammad Jizi Rabih Nehme
159001859
Managerial Ability, Financial Distress, and Audit Fees
SYNOPSIS: This study examines whether the relationship between managerial ability and audit fees is conditional on financial distress. We find that higher managerial ability increases audit fees in financially distressed firms and decreases audit fees in non distressed firms. We also observe that financially distressed firms with higher ability managers display lower accrual quality and a higher likelihood of restatement. Moreover, higher ability managers in distressed firms engage more in opportunistic financial reporting to concurrently maximize equity based compensation and cope with debt refinancing pressures, which increases audit risks and results in greater audit fees. We confirm our results using a battery of sensitivity and additional analyses.
Ferdinand A Gul Mehdi Khedmati Edwin Kia Yang Lim Farshid Navissi