Auditor s Perceptions of CEOs Overconfidence in Egypt: A Quasi-Experimental Study

Abstract

This study aims to explore auditor's perceptions of CEOs overconfidence in Egypt as one of the emerging countries. Design/methodology/approach: A quasi-experimental study is used on a sample comprises of 101 practicing auditors at public accounting firms in Egypt to assess (i) CEO overconfidence in a case scenario, (ii) the quality of earnings that would be provided by this overconfident CEO, and (iii) how overconfident CEO would be considered when they are assessing fraud risk, audit risk, audit effort and audit fees. Findings: The results suggest that not all the auditors in the sample were able to discover the same degree of overconfidence personal traits in a case scenario, and it was done by the sense, and they generally agree that overconfident CEO are more likely to provide lower earnings quality. Accordingly, they raise their assessment for audit fees as a result of an increase in fraud risk, audit risk, and audit effort. Practical implications: This study has significant implications for accounting and auditing professionals, market participants and regulators; where auditors should consider the overconfidence of the CEO during the audit process, market participants should consider managerial overconfidence when they are making investment decisions. Moreover, this study highlights the gap between auditing standards and the professional practice; which requires regulators to consider personal overconfidence traits as an indicator of financial reporting risk. Originality/value: This study helps in filling a gap in the literature; where auditor's perceptions of CEOs overconfidence have not been fully investigated in emerging economies.

Excesso de confiança e honorários de auditoria: o conselho fiscal exerce influência nessa relação?

“…Em suma, os resultados são consistentes com o argumento de que o excesso de confiança dos gestores pode elevar o risco dos demonstrativos contábeis que, por sua vez, leva a um aumento na precificação dos honorários de auditoria, seja para compensar os esforços no sentido de mitigar o risco de erros materiais nas demonstrações contábeis e/ou para exigir um prêmio pelo risco assumido (Eissa, 2020;Hribar et al, 2013;Mitra et al, 2019). Por outro lado, a evidencia de que o conselho fiscal interfere na forma como o auditor precifica o custo de auditora a partir do excesso de confiança dos gestores não foi encontrada.…”

Overconfidence and audit fees: does the fiscal council influence this relationship?

“…In short, the results are consistent with the argument that manager's overconfidence can increase the risk of financial statements, which leads to higher audit fees. This increase could be in order to compensate for the efforts of decreasing material risks of financial statements and/or to demand a premium for the risk taking (Eissa, 2020;Hribar et al, 2013;Mitra et al, 2019). On the other hand, it was not found evidence that the fiscal council or audit committee interferes in how the auditor prices audit regarding the managers' overconfidence.…”