scholarly journals RELATIONSHIP BETWEEN AUDITORS' FEES AND EARNINGS MANAGEMENT

2017 ◽  
Vol 57 (2) ◽  
pp. 148-157 ◽  
Author(s):  
ANTONIO LOPO MARTINEZ ◽  
ARQUIMEDES DE JESUS MORAES
Keyword(s):  
Earnings Management ◽  
Research Question ◽  
Audit Fees ◽  
Perception Of Risk ◽  
Audit Firms ◽  
Using Data ◽  
The Relationship

ABSTRACT This study investigates the relationship between audit fees and earnings management in the Brazilian market. In response to the research question, we used a sample of 300 firms listed on the BM&FBovespa for which it was possible to identify the amount paid to the auditors, using data gathered from the Economatica® database and the website of the Brazilian Securities Commission (Comissão Brasileira de Valores Mobiliários [CVM]). We analyzed the regressions with the aim of supporting or refuting the hypothesis that audit firms that charge less for their service tend to be more relaxed regarding earnings management by their client companies. The results support this hypothesis. The main contribution of this study is the possibility of stating that more aggressive earnings management occurs predominantly among firms that pay less than expected for audit services. This study evidences the perception of risk by audit firms and how this is reflected in the audit fees charged.

The relationship between audit components and audit expectation gap in listed companies on the Tehran stock exchange

2019 ◽  
Vol 18 (1) ◽  
pp. 199-222 ◽  
Author(s):  
Mahdi Salehi ◽  
Fariba Jahanbin ◽  
Mohammad Sadegh Adibian
Keyword(s):  
Regression Model ◽  
Multiple Regression ◽  
Stock Exchange ◽  
Audit Fees ◽  
Listed Companies ◽  
Multiple Regression Model ◽  
Content Type ◽  
Expectation Gap ◽  
Audit Firms ◽  
The Relationship

Purpose The expectation gap between auditors and users has recently been the topic of many controversies. This paper aims to evaluate the relationship between auditor’s characteristics and audit expectation gap among information users in listed companies on the Tehran stock exchange market. In other words, the study attempts to find whether there is a significant relationship between audit components and the audit expectation gap or not. Design/methodology/approach The multiple regression model is used to test the hypotheses. Research hypotheses are tested using a sample of 78 listed companies on the Tehran stock exchange during 2012-2016, by using integrated data technique of the multiple regression model. Findings The findings show that standard audit fees are not significantly associated with the audit expectation gap. Furthermore, audit fees are negatively associated with the audit expectation gap, which provides that allocated audit price in financial statements gives useful information for external and internal individuals. Predictably, it is recommended that audit opinion significantly determines the level of the audit expectation gap. The authors also find that the independence of the director boards and audit committee members fulfill the expectation gap of individual users. Moreover, finding the negative impact of audit firms ranking on the expectation gap, supports the idea of higher ranked audit firms provide high quality services, and consequently, more reliable information. Finally, the results show that the audit record is positively associated with the audit expectation gap. Originality/value As all recent studies on the expectation gap were qualitative, the present study is the first paper, which measures the expectation gap quantitatively through the statistical method.

The Relationship between Aggressive Real Earnings Management and Current and Future Audit Fees

2016 ◽  
Vol 36 (1) ◽  
pp. 85-107 ◽  
Author(s):  
Adam Greiner ◽  
Mark J. Kohlbeck ◽  
Thomas J. Smith
Keyword(s):  
Earnings Management ◽  
Firm Value ◽  
Audit Fees ◽  
Cash Flows ◽  
Data Availability ◽  
Real Earnings Management ◽  
Increased Risk ◽  
Pricing Behavior ◽  
Reported Earnings ◽  
The Relationship

SUMMARY We examine the relationship between aggressive income-increasing real earnings management (REM) and current and future audit fees. Managers pursue REM activities to influence reported earnings and, as a consequence, alter cash flows and sacrifice firm value. We posit that the implications of REM are considered in auditors' assessments of engagement risk related to the client's economic condition and result in higher audit fees. We find that, with the exception of abnormal reductions in SG&A, aggressive income-increasing REM is positively associated with both current and future audit fees. Additional analyses provide evidence consistent with increased effort combined with increased risk contributing to the current pricing effect, with increased business risk primarily driving the future pricing effect. We, therefore, provide evidence that aggressive income-increasing REM activities have a significant influence on auditor pricing behavior, consistent with the audit framework associating engagement risk with audit fees. JEL Classifications: G21; G34; M41. Data Availability: The data in this study are available from public sources indicated in the paper.

The relationship between managerial ability, earnings management and internal control quality on audit fees in Iran

2019 ◽  
Vol 69 (4) ◽  
pp. 685-703 ◽  
Author(s):  
Mahdi Salehi ◽  
Mahmoud Mousavi Shiri ◽  
Seyedeh Zahra Hossini
Keyword(s):  
Earnings Management ◽  
Internal Control ◽  
Significant Relationship ◽  
Stock Exchange ◽  
Audit Fees ◽  
Real Earnings Management ◽  
Managerial Ability ◽  
Content Type ◽  
Control Quality ◽  
The Relationship

Purpose The purpose of this paper is to emphasize the relationship between managerial ability, earnings management, internal control quality and audit fees to establish whether or not there is a significant relationship between the variables of managerial ability, earnings management, internal control quality and the audit fees. Design/methodology/approach The study sample includes 190 listed companies on the Tehran Stock Exchange during 2009–2016. Research hypotheses were tested using the statistical methods of multivariable linear regression and data envelopment analysis pattern. Findings The obtained results indicate that there is a significant and direct relationship between managerial ability and internal control quality as well as real earnings management and internal control quality. Based on the results obtained from the second hypothesis, the authors could claim that there is an inverse and significant relationship managerial ability and audit fees. The third hypothesis also revealed that in companies with lower audit fees, there is a stronger relationship between managerial ability and internal control quality. The results of related tests show no significant relationship between accrual-based earnings management and internal control quality. Originality/value This paper is the first study in Iran whose main focus is on the relationship between managerial ability, earnings management, internal control quality and audit fees.

Does Audit Fee Homogeneity Exist? Premiums and Discounts Attributable to Individual Partners

2011 ◽  
Vol 30 (4) ◽  
pp. 249-272 ◽  
Author(s):  
Stuart D. Taylor
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Data Availability ◽  
Audit Market ◽  
Homogeneity Assumption ◽  
Audit Firms ◽  
Audit Fee ◽  
Using Data ◽  
The Individual ◽  
Made In

SUMMARY This paper investigates the implied assumption, made in many audit fee determination studies, that, within a given audit firm, all partners produce a statistically identical level of audit quality and earn a statistically identical level of audit fees. This is referred to as the “homogeneity assumption.” However, this is contradicted by the individual auditor behavioral literature, which shows that different individual auditor characteristics can have an impact on audit quality. Given the fact that audit partners differ in their quality, this paper hypothesizes that different audit partners will be able to earn differing levels of fees. This hypothesis is tested by estimating an audit fee model using data from 822 Australian publicly listed companies for the year 2005. Australia is an ideal audit market for this research, as the disclosure of the name of the audit engagement partner in the audit report is mandatory. The empirical results indicate that individual audit partners earn individual audit fee premiums (or discounts) that are not explainable by the audit firms of which they are members. Data Availability: All data have been extracted from publicly available sources.

scholarly journals The Impact Of The Joint Provision Of Non-Audit Services On Audit Firm’s Tenure: A Kuwaiti Evidence

2017 ◽  
Vol 34 (1) ◽  
pp. 69-80
Author(s):  
Meshari O. Al-Hajri
Keyword(s):  
Negative Relationship ◽  
Audit Fees ◽  
Developed Countries ◽  
Auditor Independence ◽  
Audit Market ◽  
Audit Firms ◽  
Using Data ◽  
The Impact ◽  
Audit Independence ◽  
Joint Provision

Concerns about the potential harm of the increased economic bond between the audit firm and the audit client resulting from the joint provision of audit and NAS have been investigated extensively in the audit literature. However, much of this research was conducted in developed countries’ settings, with very little, if any, carried out in the context of a developing country. The current study aims at filling this gap in audit research by investigating two important issues related to the joint provision using data from the Kuwaiti audit market. First, this study examines whether there is an association between the provision of NAS to the audit client and audit firm’s tenure as a surrogate of audit independence. Second, the current study aims at examining factors expected to influence clients’ purchase of NAS in the Kuwaiti audit market. Contrary to expectations, the results reveal a negative relationship between the joint provision and external audit firm’s tenure, suggesting that such a joint provision does not lead to the impairment of auditor independence. Results obtained from the NAS purchase logistic regression also show that audit client’s purchase of NAS from their audit firms is positively related to the amount of audit fees and client’s financial leverage.

scholarly journals Auditor report and earnings management: Evidence from FTSE 350 companies in the UK

2016 ◽  
Vol 6 (4) ◽  
pp. 334-344 ◽  
Author(s):  
Mohammad Alhadab
Keyword(s):  
Earnings Management ◽  
Discretionary Accruals ◽  
Real Earnings Management ◽  
Audit Report ◽  
Audit Firms ◽  
The Uk ◽  
Different Characteristics ◽  
The Relationship

This paper examines the relationship between audit report and real-based and accrual-based earnings management based on a UK sample. Prior research has mostly focused on US data and examined the relationship between auditor report (qualified vs. non-qualified) and earnings management (proxied by discretionary accruals), and found evidence that qualified audit report is positively associated with the level of discretionary accruals. Despite the importance of the role of audit firms to constrain the use of earnings management, there is no research to date has examined the relationship between auditor reports and real earnings management activities based on UK sample. This paper therefore fills this gap in the literature by providing the first evidence for UK FTSE 350 companies that auditor report is positively associated with real and accrual earnings management. The paper also provide evidence that firms received qualified audit report share different characteristics as compared to firms received un-qualified audit report.

The Relation between Auditors' Fees for Nonaudit Services and Earnings Management

2002 ◽  
Vol 77 (s-1) ◽  
pp. 71-105 ◽  
Author(s):  
Richard M. Frankel ◽  
Marilyn F. Johnson ◽  
Karen K. Nelson
Keyword(s):  
Earnings Management ◽  
Audit Fees ◽  
Discretionary Accruals ◽  
Negative Association ◽  
Present Evidence ◽  
Negatively Associated ◽  
Management Indicators ◽  
Earnings Surprises ◽  
Using Data ◽  
Auditor Fees

This paper examines whether auditor fees are associated with earnings management and the market reaction to the disclosure of auditor fees. Using data collected from proxy statements, we present evidence that nonaudit fees are positively associated with small earnings surprises and the magnitude of discretionary accruals, while audit fees are negatively associated with these earnings management indicators. We also find evidence of a negative association between nonaudit fees and share values on the date the fees were disclosed, although the effect is small in economic terms.

PENGARUH KECAKAPAN MANAJERIAL DAN KINERJA KEUANGAN TERHADAP MANAJEMEN LABA

2018 ◽  
Vol 9 (2) ◽  
pp. 204-221
Author(s):  
Istiqomah Istiqomah ◽  
Vita Elisa Fitriana
Keyword(s):  
Earnings Management ◽  
Financial Performance ◽  
Stock Exchange ◽  
Data Envelopment ◽  
Return On Equity ◽  
Managerial Skills ◽  
Using Data ◽  
Relationship Of ◽  
The Relationship ◽  
Positive Effect

The purpose of the study was to examine the effect of the relationship of managerial skills and financial performance on earnings management. Sample from this study is a manufacturing company listed on the Indonesia Stock Exchange (IDX) in 2014 to 2016, and as many as 137 sample companies. Managerial skills are measured using Data Envelopment Analysis (DEA). Financial performance is measured using ROE (Return on Equity) financial ratios. While earnings management is measured by calculating discretionary accruals of modified Jones models. By using multiple regression analysis, it was found that managerial skills did not affect earnings management. Because capable managers tend not to do earnings management. Furthermore, financial performance has a positive effect on earnings management. Because when a company's performance is bad, management tends to maintain the company's reputation for not doing earnings management.

scholarly journals Does Knowledge Stickiness Affect a Firm’s Innovation Capability? Empirical Evidence From Indonesian Furniture SMEs

2012 ◽  
Vol 14 (1) ◽  
pp. 17 ◽  
Author(s):  
Nurul Indarti
Keyword(s):  
Empirical Evidence ◽  
Positive Impact ◽  
Research Question ◽  
Innovation Capability ◽  
Main Research ◽  
Four Dimensions ◽  
Knowledge Domains ◽  
Using Data ◽  
The Relationship ◽  
Organizational Innovations

This study aims to examine the relationship between knowledge stickiness and a firm’s innovation capability in the context of developing countries, i.e., Indonesia. The main research question addressed by this study is: does knowledge stickiness affect a firm’s innovation capability? Using data from 100 small- and medium-sized furniture enterprises (SMEs), the study finds that product innovations are predominant over process and organizational ones. However, incremental innovations are often more preferred than radical ones. This study also finds that the firms absorb knowledge from various sources to undertake innovations. Buyers, Internet, and suppliers are the significant sources, for sensory, coded, and theoretical knowledge. Buyers are also the main source of a great extent of various knowledge domains related to product, process, and organizational innovations. In general, the furniture firms do not pay considerable attention to planning stages when introducing innovations, as indicated by the fact that not all innovations are preceded by initiatives, except for really new processes and organizational innovations whose impact on the firms’ revenue is less visible. Out of four dimensions of knowledge stickiness used in this study, three of them (i.e., knowledge interconnectedness, sensory knowledge, and coded knowledge) are proven to have significant impact on a firm’s innovation capability. We find, knowledge interconnectedness and coded knowledge have a positive impact, while sensory knowledge influences a firm’s innovation capability in a negative direction. All in all, this study provides empirical evidence that knowledge stickiness has a significant impact on a firm’s innovation capability (explains 36% of total variance).

CEO Turnover and Audit Pricing

2014 ◽  
Vol 28 (2) ◽  
pp. 297-312 ◽  
Author(s):  
Hua-Wei Huang ◽  
Robert J. Parker ◽  
Yun-Chia Anderson Yan ◽  
Yi-Hung Lin
Keyword(s):  
Voluntary Turnover ◽  
Audit Fees ◽  
Ceo Turnover ◽  
Data Availability ◽  
Predictor Variables ◽  
Audit Pricing ◽  
Audit Firm ◽  
Audit Firms ◽  
And Control ◽  
The Relationship

SYNOPSIS This study examines the relationship between CEO turnover in client companies and the fees charged by their audit firms. We propose that forced CEO turnover (such as dismissals) pose higher business and audit risks for the audit firm than voluntary turnover (such as retirements); further, greater risk leads to higher audit prices. We develop a regression model of audit fees that includes, as predictor variables, type of CEO turnover and control variables identified in prior studies (e.g., ROA, total assets, and corporate governance). Results reveal that companies with forced CEO turnover have significantly higher audit fees than companies with either voluntary turnover or no turnover. Further, we find no difference in audit fees between firms with voluntary turnover and firms without turnover. Data Availability: The data used in this study are publicly available.

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