Accrual reversals and audit fees: the role of abnormal audit fees

Lin, Fang Chi; Lin, Yu Cheng; Chen, Chieh Shuo

doi:10.1080/16081625.2016.1256784

Cited by 6 publications

(9 citation statements)

References 38 publications

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“…Audit fees: Consistent with former empirical studies (Gul et al, 2003;Alali, 2011;Lin et al, 2018), audit fees (AFEE) are defined as the natural logarithm of audit fees.…”

Section: Independent Variables: Audit Quality Proxiesmentioning

confidence: 99%

Does audit quality influence earnings management in emerging markets? Evidence from Jordan

Almarayeh¹,

Guzmán²,

Abdullatif³

2020

RC-SAR

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Este estudio investiga si algunos atributos de la calidad de auditoría son capaces de restringir la manipulación de resultados en un país en desarrollo, Jordania, cuyo contexto cultural, económico e institucional es muy diferente del contexto de los países analizados anteriormente. Se usó la regresión de mínimos cuadrados generalizada (GLS) para estudiar la asociación entre dos atributos de la calidad de auditoría (tamaño del auditor y honorarios de auditoría) y los ajustes por devengos discrecionales, como proxy de la manipulación de resultados, para una muestra de empresas industriales que cotizan en la Bolsa de valores de Amman durante el período 2012 - 2016. Los resultados son consistentes con la expectativa de que en los países emergentes la auditoría externa puede funcionar de manera diferente a la de los países anglosajones y de Europa occidental con respecto a su papel en la restricción de la manipulación de resultados e indican que, dado el entorno institucional en Jordania, el tamaño del auditor y los honorarios de auditoría no tienen un efecto significativo en la manipulación de resultados. Este estudio proporciona a los lectores información sobre si y cómo el entorno institucional influye en la relación entre la calidad de la auditoría y la manipulación de resultados. Además, presenta nueva evidencia sobre el efecto moderador del nivel de los honorarios de auditoría en su relación con la manipulación de resultados. Los resultados de este estudio podrían proporcionar información valiosa a los reguladores, tanto en Jordania como en otros países con un entorno económico e institucional similar, para prevenir las prácticas de manipulación de resultados. This study investigates whether some audit quality attributes are capable to restrict earnings management in a developing country, Jordan, whose cultural, economic and institutional context is very different from most previously analyzed countries’ context. Generalized least square regression (GLS) was used to study the association between two audit quality attributes (auditor size and audit fees) and discretionary accruals, as a proxy of earnings management, for a sample of industrial firms listed on the Amman Stock Exchange during the period 2012 – 2016. The findings are consistent with the expectation that in emerging countries external audit can function differently from that in Anglo-Saxon and West-European countries with regard to its role in restricting earnings management and indicate that, given the institutional environment in Jordan, auditor size and audit fees have no significant effect on earnings management. This study provides readers with information about if and how the institutional setting influences the relationship between audit quality and earnings management. Furthermore, it presents new evidence regarding the moderating effect of the level of audit fees on their relation with earnings management. This study’s findings could provide valuable information to regulators and standards setters, both in Jordan and other countries with a similar economic and institutional environment, which can help in preventing earnings management practices.

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“…Audit fees: Consistent with former empirical studies (Gul et al, 2003;Alali, 2011;Lin et al, 2018), audit fees (AFEE) are defined as the natural logarithm of audit fees.…”

Section: Independent Variables: Audit Quality Proxiesmentioning

confidence: 99%

Does audit quality influence earnings management in emerging markets? Evidence from Jordan

Almarayeh¹,

Guzmán²,

Abdullatif³

2020

RC-SAR

View full text Add to dashboard Cite

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“…Audit fees that are expected (or normal) reflect an auditor's efforts to manage their clients' audit risks (Simunic, 1980; Doogar et al. , 2015; Lin et al. , 2018).…”

Section: Introductionmentioning

confidence: 99%

“…Abnormal audit fees may include not only economic rents but also audit efforts and unobserved audit costs as well in this situation (Doogar et al. , 2015; Lin et al. , 2018; Amir et al.…”

Section: Introductionmentioning

confidence: 99%

“…The fraction of actual audit fees that exceeds anticipated audit fees is referred to as abnormally high audit fees. Audit fees that are expected (or normal) reflect an auditor's efforts to manage their clients' audit risks (Simunic, 1980;Doogar et al, 2015;Lin et al, 2018). According to economic bonding theory, audit fees that are extraordinarily high (or abnormal) are considered as the economic rents associated with a client-auditor relationship (DeAngelo, 1981;Choi et al, 2010).…”

Section: Introductionmentioning

confidence: 99%

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Exploring the deep neural network model’s potential to estimate abnormal audit fees

Choi

Lee

2022

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PurposeThe paper aims to estimate abnormal audit fees more precisely than the traditional audit fee model by applying an artificial intelligence (AI) method.Design/methodology/approachThe AI technique employed in this paper is the deep neural network (DNN) model, which has been successfully applied to a wide variety of decision-making tasks. The authors examine the ability of the classic ordinary least squares (OLS) and the DNN models to describe the effects of abnormal audit fees on accounting quality based on recent research that demonstrates a systematic link between accruals-based earnings management and abnormal audit fees. Thus, the authors seek to imply that their new method provides a more precise estimate of abnormal audit fees.FindingsThe findings indicate that abnormal audit fees projected using the DNN model are substantially more accurate than those estimated using the classic OLS model in terms of their association with earnings management. Specifically, when abnormal audit fees predicted using the DNN rather than the OLS are incorporated in the accruals-based earnings management model, the adjusted R2s are larger. Additionally, the DNN-estimated coefficient of abnormal audit fees is more favorably associated to earnings management than the classic OLS-estimated coefficient. Additionally, the authors demonstrate that the DNN outperforms OLS in terms of explanatory power in a negative discretionary accruals subsample and a Big 4 auditor subsample. Finally, abnormal audit fees projected using the DNN method provide a better explanation for audit hours than those estimated using the OLS model.Originality/valueThis is the first approach that utilized a machine learning technology to estimate abnormal audit fees. Because more precise measurement yields more credible research results, the findings of this study imply a significant advancement in calculating unusually higher audit fees.

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“…Our findings may help top executives and decision makers to focus and utilize governance mechanisms that may lead to a decrease in audit fees and to resolve the mechanisms that are causing audit fees to increase. Alternatively, to focus on some governance mechanisms that lead to an increase in audit quality because of more effort by external auditors (Lin et al, 2018). The remainder of the paper is as follows: literature and hypotheses development are covered in section two, the sample selection and tested models are included in the research design in section three, section four elaborates the results and section five concludes.…”

Section: Directors' Monitoring Role Ownership Concentration and Audit Fees 1 Introductionmentioning

confidence: 99%

Directors' Monitoring Role, Ownership Concentration and Audit fees

Nehme¹,

Amir²,

Haslam³

2020

AABFJ

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The research objective is to analyse different factors potentially involved in influencing the size of audit fees. The association between the Board of Directors and the shareholders of listed companies should be effectively developed and there should be a higher spirit of compliance with the governance code. The empirical model is constructed to assess the theoretical and statistical relationship between audit fees and corporate governance characteristics over a period of four years (for FTSE 350 companies excluding financial institutions between 2012 and 2015). Different testing techniques are used for robustness reasons. We found that Board of Directors' characteristics are significant in relation to audit fees. Some of the Audit Committee characteristics are affected by the collegiality principle in relation to the Board of Directors' characteristics. The consultative role of audit committee directors is dominated by the role of the Board of Directors. Mandatory audit fees, and not total auditors' remuneration is included in this study. While other studies assess mainly one corporate governance mechanism in relation to audit fees, we include the corporate governance mechanisms that are directly related to auditors' scope. This paper can be used as a tool for audit practitioners and corporate executives to seek a better auditor-client relationship.

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Accrual reversals and audit fees: the role of abnormal audit fees

Cited by 6 publications

References 38 publications

Does audit quality influence earnings management in emerging markets? Evidence from Jordan

Does audit quality influence earnings management in emerging markets? Evidence from Jordan

Exploring the deep neural network model’s potential to estimate abnormal audit fees

Directors' Monitoring Role, Ownership Concentration and Audit fees

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