Examining audit fees and perceived risk during the financial crisis

Document Type : Original Article

Author

M.A. in Public Administration (Budget and Public Finance), Payam Noor University, Saveh, Iran

Abstract

The escalation of the global economic and financial crisis, despite the fact that several years have passed since the beginning of the crisis, is still hitting the economies of countries. The financial crisis of 2008 has had a severe effect on the global economy. Contrary to previous accounting scandals, the auditing profession has remained relatively silent in the face of this crisis. Auditors' response to the financial crisis and the perceived audit risk during the financial crisis may vary. The financial crisis reveals systemic risks that are not well understood by auditors in non-critical periods, and these risks are significantly lower in non-critical periods. This study examines audit fees and perceived risk during the financial crisis. This research has been conducted on 99 companies listed on the Tehran Stock Exchange during the period 2008-2017. The research hypotheses were tested using Eviews software. The results showed that the financial crisis has a significant effect on audit fees and the restatement of financial statements during the financial crisis does not have a significant effect on audit costs.

Keywords

Main Subjects

References

Alexeyeva, I. & Svanström, T. (2015). The impact of the global financial crisis on audit and non-audit fees: Evidence from Sweden. Managerial Auditing Journal, 30(4/5), 302-323.
AL-Mutairi A., Kamal, N. & Al-Enazi, N. (2017). An Empirical Investigation of Factors Affecting Audit Fees: Evidence from Kuwait. International Advances in Economic Research, 23(3), 333–347.
Bedard, J. & Johnstone, K. (2004). Earnings manipulation risk, corporate governance risk, and auditors’ planning and pricing decisions. The Accounting Review, 79(2), 277-304.
Bell, T.B., Landsman, W.R. & Shackelford, D.A. (2001). Auditors' perceived business risk and audit fees: Analysis and evidence. Journal of accounting research, 39(1), 35-43.
Bentley, K.A., Omer, T.C. & Sharp, N.Y. (2013). Business strategy, financial reporting irregularities, and audit effort. Contemporary Accounting Research, 30(2), 780-817.
Bunting, R. (2009). Restoring Integrity in the Global Financial System. Retrieved from accounintgnet.com/x65750.xml.
Cahan, S. & Zhang, W. (2006). After Enron: auditor conservatism and ex-Anderson clients. The Accounting Review, 81(1), 49-82.
Cerbioni, F., Fabrizi, M. & Parbonetti, A. (2015). Securitizations and the financial crisis: Is accounting the missing link? Accounting Forum, 39, 155–175.
Chen, H., Hua, S., Liu, Z. & Zhang, M. (2019). Audit fees, perceived audit risk, and the financial crisis of 2008. Asian Review of Accounting, 27(1), 97-111.
Chen, H., Zhang, M. & Ling, H. (2011). Restatement and audit risk. Financial Decisions, 23(1), 1-14.
Coso. (2013). Internal Control – Integrated Framework: Executive summary. www.coso.org.
Daniel, S. (1988). Some empirical evidence about the assessment of audit risk in practice. Auditing: A Journal of Practice & Theory, 7(2), 174-181.
Dao, M. & Pham, T. (2014). Audit tenure, auditor specialization, and audit report lag. Managerial Auditing Journal, 29(6), 490-512.
Diamond, D.W. & Rajan, R. (2009). The credit crisis: Conjectures about causes and remedies. NBER Working Paper No. 14739.
Doogar, R., Rowe, S.P. & Sivadasan, P. (2015). Asleep at the wheel (again)? Bank audits during the lead‐up to the financial crisis. Contemporary Accounting Research, 32(1), 358-391.
Dusenbury, R., Reimers, J. & Wheeler, S. (2000). The audit-risk model: an empirical test for conditional dependencies among assessed component risks. Auditing: A Journal of Practice & Theory, 19(2), 105-117.
Edwards, A. (2009). What caused the Global Financial Meltdown? Retrieved from www.jamaicaobserver.com.
Elder, R., Zhang, Y., Zhou, J. & Zhou, N. (2009). Internal control weaknesses and client risk management. Journal of Accounting, Auditing and Finance, 24(4), 543-579.
Alade, muyiwa, ajibolade, solabomi, ogungbade, olayinka isaiah. (2013). The role of the professional accountants in the global financial crisis: the case of Nigeria. British journal of humanities and social sciences, 9(2).
Francis, J.R. (1984). The effect of audit firm size on audit prices: A study of the Australian market. Journal of Accounting and Economics, 6(2), 133-151.
Geiger, M.A., Raghunandan, K. & Riccardi, W. (2014). The global financial crisis: U.S. bankruptcies and going-concern audit opinions. Account. Horiz, 28, 59–75.
Heilpern, E., Haslam, C. & Andersson, T. (2009). When it comes to the crunch: What are the drivers of the US banking crisis? Accounting Forum, 33(2), 99–113.
Hoag, M.L. & Hollingsworth, C.W. (2011). An intertemporal analysis of audit fees and section 404 material weaknesses. Auditing: A Journal of Practice& Theory, 30(2), 173-200.
Hopwood, A.G. (2009). The economic crisis and accounting: implications for the research community. Accounting, Organizations and Society, 34, (6–7), 797-802.
Jiambalvo, J. & Waller, W. (1984). Decomposition and assessments of audit risk. Auditing: A Journal of Practice & Theory, 3(2), 80-88.
Krishnan, G. & Zhang, Y. (2014). Is there a relation between audit fee cuts during the global financial crisis and banks’ financial reporting quality? Journal of Accounting and Public Policy, 33(3), 279-300.
Krishnan, G. & Wang, C. (2015). The relation between managerial ability and audit fees and going concern opinions. Auditing: A Journal of Practice & Theory, 34(3), 139-160.
Li, Y. & Luo, Y. (2017). The contextual nature of the association between managerial ability and audit fees. Review of Accounting and Finance, 16(1).
Mande, V. & Son, M. (2013). Do financial restatements lead to auditor changes? Auditing: A Journal of Practice & Theory, 32(2), 119-145.
Messier, W. & Austen, L. (2000). Inherent risk and control risk assessments: Evidence on the effect of pervasive and specific risk factors. Auditing: A Journal of Practice & Theory, 19(2), 119-131.
Mithu Dey, R. & Lim, L. (2018). Audit fee trends from 2000 to 2014. American Journal of Business, 33(1/2), 61-80.
Palmrose, Z.V. (1986). Audit fees and auditor size: Further evidence. Journal of Accounting Research, 24(1), 97-110.
Persakis, A. & Iatridis, G.E. (2016). Audit quality, investor protection and earnings management during the financial crisis of 2008: an international perspective. J.Int.Financ. Mark. Inst. Money, 41, 73–101.
Shahzad, Kh., Thierry, P., Ghulame, R. & El-Temtamyb, O. (2017). Audit quality during the global financial crisis: The investors’ perspective. Research in International Business and Finance, 45, 94-105.
Sikka, P. (2009). Financial crisis and the silence of the auditors. Accounting, Organizations and Society, 34(6–7), 868-873.
Simunic, D. (1980). The pricing of audit services: Theory and evidence. Journal of Accounting Research, 18(1), 161-190.
Vandervelde, S., Tubbs, R., Schepanski, A. & Messier, W. (2009). Experimental tests of a descriptive theory of combined audited risk assessment. Auditing: A Journal of Practice & Theory, 28(2), 145-169.
Woods, M., Humphrey, C., Dowd, K. & Liu, Y.L. (2009). Crunch time for bank audits? Questions of practice and the scope for dialogue. Manag. Audit. J., 24, 114–134.
Xingze, W. (2012). Corporate governance and audit fees: Evidence from companies listed on the Shanghai Stock Exchange. China Journal of Accounting Research, 5(4), 321–342.
Xu, Y., Carson, E., Fargher, N. & Jiang, L. (2013). Responses by Australian auditors to the global financial crisis. Accounting & Finance, 53(1), 301-338.
Xu, Y., Jiang, A.L., Fargher, N. & Carson, E. (2011). Audit reports in Australia during the global financial crisis. Australian Accounting Review, 21(1), 22-31.
Zhang, T. & Huang, J. (2013). The risk premium of audit fee: evidence from the 2008 financial crisis. China Journal of Accounting Studies, 1(1), 47-61.
New Applied Studies in Management, Economics & Accounting
Volume 2, Issue 1
March 2019
Pages 103-119

Files

History

  • Receive Date: 27 January 2019
  • Revise Date: 15 February 2019
  • Accept Date: 04 March 2019

Share

How to cite

Statistics