No abstract

Our study explores the association between capitalized development costs and audit fees. International Accounting Standard No. 38 stipulates the discretion to capitalize the development costs of internally generated intangible assets. We find a positive association between capitalized development costs and audit fees, which reflects auditors' concern that managers may use the discretion of development cost capitalization to manipulate earnings. Moreover, this positive association is mitigated by stronger investor legal protection because stronger investor legal protection alleviates the earnings management concern from capitalized development costs. These results suggest that country-level legal regimes affect auditors' perception on client firms' accounting choices. Our study contributes to the literature exploring how legal regimes affect auditor behaviors.

No abstract

No abstract

No abstract