Fair value accounting and audit fees: The moderating effect of the global financial crisis in Jordan

Abstract

This article introduces new empirical evidence exploring the relationship between the introduction of Fair Value Disclosure (FVD) and audit fees, and the moderating effect of the Global Financial Crisis (GFC) on this relationship. This study is primarily motivated by the limited and inconclusive research on the monitoring costs resulting from FVD. The Ordinary Least Squares (OLS) method using a sample of 222 Jordanian firms during 2005–2018 is applied. The analysis finds that a greater level of FVD is the major cause of high audit fees. Results are more pronounced for firms with larger proportions of subjective FVDs (Level 3 assets). A significant negative (positive) impact of the precrisis (post-crisis) period on the association between the proportion of fair-valued assets and audit fees is confirmed. The regression results confirm the negative effect of pre-crisis period on moderating the association between the all-fair value input levels (Levels 1, 2 and 3 assets) and audit fees. The post-crisis period has a significant positive effect only in relation to Level 1 assets. Findings of this study provide policymakers and standards setters with updated evidence originating from a non-Western setting about the post-implementation costs of FVD.

The moderating impact of auditor industry specialisation on the relationship between fair value disclosure and audit fees: empirical evidence from Jordan

“…Moreover, as is the situation in the majority of developing nations, Jordanian businesses are classified as small businesses (i.e. family-owned businesses) (Alharasis et al, 2022b). Therefore, businesses' nature, requirements and disclosure framework greatly differ between Jordan and the US.…”

“…22/1997" and "Law of Accounting Career No. 73/2003" (Alharasis et al, 2022b. Currently and based on the latter law, to be an auditor in Jordan, applicants must have a "Professional Practice License".…”

“…The growing literature on accounting in the ME nations is due to their similar heritage, political systems, traditions and culture (Tahat et al, 2018). Secondly, the implementation of IAS/IFRS for almost 30 years in Jordan provides worthwhile insights into how FVMs are prepared and audited under different circumstances (Alharasis et al, 2022b). Thirdly, the increasing use of financial instruments by Jordanian companies as well as the publicity about financial instrument losses reported in the media further encourage this examination to concentrate on FVA of financial assets (Tahat et al, 2016).…”

“…The growing literature on accounting in the ME nations is due to their similar heritage, political systems, traditions and culture (Tahat et al ., 2018). Secondly, the implementation of IAS/IFRS for almost 30 years in Jordan provides worthwhile insights into how FVMs are prepared and audited under different circumstances (Alharasis et al. , 2022b).…”

“…Moreover, as is the situation in the majority of developing nations, Jordanian businesses are classified as small businesses (i.e. family-owned businesses) (Alharasis et al. , 2022b).…”