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Adverse client publicity can entail regulatory scrutiny over audited financial statements and impose political costs on auditors. We use the changes in client publicity caused by their controlling owners' presence on the Hurun Rich List (the rich listing) in China to test the hypothesis that auditor conservatism increases with client publicity. Our evidence indicates auditors issue more adverse audit opinions to clients and charge higher fees following the rich listing events. Moreover, we observe that auditors strategically respond to clients with different attributes—for clients whose owners accumulated wealth in a more questionable manner, auditors choose more stringent audit reporting to better defend themselves from regulatory scrutiny; for clients without such attributes, auditors primarily rely on increasing audit fees to cope with any post-listing increase in audit risks. Our analyses also suggest the impacts of rich listings tend to be concentrated among large audit firms with stronger reputation concerns or among engagement auditors with more conservative reporting styles. By showing how auditors manage political risks associated with heightened public scrutiny, we contribute to both the auditing and political cost literature.

This study examines whether and how audit quality proxied by the magnitude of absolute discretionary accruals is associated with abnormal audit fees, that is, the difference between actual audit fee and the expected, normal level of audit fee. The results of various regressions reveal that the association between the two is asymmetric, depending on the sign of the abnormal audit fee. For observations with negative abnormal audit fees, there is no significant association between audit quality and abnormal audit fee. In contrast, abnormal audit fees are negatively associated with audit quality for observations with positive abnormal audit fees. Our findings suggest that auditors’ incentives to deter biased financial reporting differ systematically, depending on whether their clients pay more than or less than the normal level of audit fee. Our results are robust to a variety of sensitivity checks.

We study the effects of cross-listings on audit fees. We first develop a model in which legal environments play a crucial role in determining the auditor's legal liability. Our model and analysis predict that auditors charge higher fees for firms that are cross-listed in countries with stronger legal regimes than they do for non-cross-listed firms and that the cross-listing audit fee premium increases with the difference in the strength of legal regimes between the cross-listed foreign country and the home country. We then empirically test these predictions. The results of our cross-country regressions strongly support our predictions. In addition, we find no significant cross-listing fee premium for firms that are cross-listed in countries whose legal regimes are no stronger than those of their home countries. This suggests that cross-listing audit fee premiums are associated with increased legal liability and not with increased audit complexity per se. Our findings help explain why cross-listing premiums occur and what determines their magnitude.

Several studies report an audit fee premium for auditor industry expertise measured at the office level. We extend this line of research by examining whether there is a fee premium for auditor industry expertise measured at the partner level. Using Australian data, we show that the coefficient for partner-level industry expertise is highly significant and economically important. This is consistent with industry knowledge or expertise residing in the human capital of individual engagement partners. Inconsistent with prior research, we show that there is no auditor industry expertise fee premium at the audit office level when partner-level expertise is controlled for. Consistent with prior research, we find little evidence of a fee premium at the national level. The results suggest that the auditor industry expertise fee premium is mainly a partner-level phenomenon, casting doubt on the belief that industry knowledge or expertise is distributed across engagement partners within an audit office.

Purpose The literature on the influence of audit committees (AC) and cosmetic accounting (CA) is scarce. AC plays a unique and vital role in boosting earnings reliability in countries with weaker application of accounting standards or weaker legal protection for investors. AC, therefore, are considered to be one of the essential tools available to directors in supervising management decisions regarding financial reporting. This paper aims to examine the influence of AC characteristics (ACC) on CA and how this relationship is moderated by the audit fee. Design/methodology/approach This study used probit regression to analyze 1,218 firm-year observations of listed companies in Tehran Stock Exchange from 2014 to 2020. Findings The results show that AC financial accounting expertise, AC independence, female AC membership and AC tenure were negatively related to CA. The negative relationship is highly pronounced when a firm incurs higher audit fees, and audit fees moderate the relationship between ACC and CA. Results for the robustness checks show that only AC independence was significant, and the results of other characteristics were not significant. Research limitations/implications This research was conducted in an Iranian setting where the formation of ACs is on the verge of regulation; therefore, the data used for the study only contains the seven-year period of ACs’ statutory activity. In addition, a lack of consensus on the precise measures of an AC’s effectiveness could be considered as a restrictive factor. Originality/value The findings provide an initial insight into the effect AC on CA and moderating effect of audit fee on the relationship between ACC and CA.

This study aims to analyze the factors that influence audit quality, namely the audit committee, audit tenure, audit fee, PAF (Public Accounting Firm) rotation, and client company size. The population in this study were all manufacturing companies on the Indonesia Stock Exchange for the 2019-2022 period and the sample of this study was 76 manufacturing companies that met the sample criteria during the study period. The sampling technique in this study used the purposive sampling method and used logistic regression to analyze. Based on the study, it can be concluded that the audit committee, audit tenure, and PAF rotation do not have an effect on audit quality. Meanwhile, audit fees and client company size have a positive effect on audit quality. This shows that large companies are able to pay high fees to auditors will obtain quality audit results. The implications of this study indicate that there is a tendency that auditors in Indonesia will work as well as possible if they get a promising fee, so it is necessary to emphasize to auditors the importance of a professional attitude that a professional's work does not only depend on the fee they get.

Purpose This study aims to examine how woman leadership (i.e., woman board chairperson, woman chief executive officer (CEO) and board gender diversity) affects audit fee and also ascertained the interactive effect of woman leadership and gender diversity on audit committee on audit fee. Design/methodology/approach The study applied ordinary least square and fixed-effect estimators on the data of 21 universal banks in Ghana for the period 2010–2021 to estimate the empirical results. Findings It is revealed that under the leadership of women (woman CEO and board gender diversity), higher external audit quality is ensured as higher audit fee is paid. Interestingly, it was found that with the presence of women on the audit committee, the integrity of internal controls and internal audit procedures are enhanced, which leads to quality financial reporting, calls for lower audit effort, hence lower audit fee. Practical implications The result indicates that firms can rely on the leadership of women in ensuring quality external audit and quality financial reporting, which ultimately helps to minimize the information risk to all stakeholders. Originality/value The paper contributes to extant literature by establishing that, under the leadership of women in banking entities from a developing country context, external audit quality and financial reporting are achieved.

Audit fee residuals (the error term from audit fee models) are widely used in the accounting research literature. Researchers, however, have adopted contrasting views of these fee residuals. One view is that fee residuals are a combination of noise and auditor rents (i.e., abnormal profits), while the other view is that they are a combination of noise and unobserved audit costs (including any risk premium and a normal rate of return on all factors of production). As a result, identical research findings are presently given conflicting policy interpretations. We use differences in fee residual persistence across continuing and new audit engagements to elucidate the extent to which fee residuals consist of unobserved audit costs, auditor rents, and noise elements. In a large sample of U.S. public company audit engagements, we find evidence suggesting that fee residuals largely consist of researcher-unobserved audit production costs common to all auditors. We discuss the implications of this finding for policy setters and for future auditing research.

Purpose This paper aims to examine the relationship between abnormal audit fees and accrual-based and real-based earnings management by using a sample of 1,055 UK firm-year observations from 2006 to 2015. Design/methodology/approach Linear regression was used to test the hypothetical relation between abnormal audit fees and accrual and real earnings management. Following prior research, several proxies have been used to measure abnormal audit fees, accrual earnings management and real earnings management. Findings Abnormal audit fees were negatively associated with real earnings management. A higher level of abnormal audit fees was the major driver of enhanced audit quality, in turn reducing managers’ flexibility to use real earnings management and to manipulate reported earnings. Abnormal audit fees were found to be negatively associated with abnormal discretionary expenses, abnormal production costs and the aggregated measure of real earnings management. Practical implications This paper outlines the importance of considering any abnormal audit fees paid to audit firms. It is expected that the abnormal audit fees might compromise auditor independence and lead to a higher level of earnings management. However, the findings of this paper provide a new insight to many interested parties, e.g. regulators, audit firms, investors and creditors, that abnormal audit fees are associated with higher audit quality and higher financial reporting quality in the UK. Regulators in the meanwhile should reform the audit market by, e.g. revising the types of non-audit services that are provided for the same client, setting a cap on the maximum fees that can charged by auditors and monitoring earnings management practices. Audit firms should take into consideration that any charged abnormal level of audit fees may have a direct impact on audit quality. Originality/value This is the first study to examine the impact of abnormal audit fees on accruals and real earnings management after major regulatory changes that took place in the UK. These major changes are the adoption of the International Financial Reporting Standards in 2005 and the new legislation concerning the ethical standards issued by the UK Audit Practice Board in 2004. These two major changes are expected to have a direct impact on both earnings management and audit fees, notably for the largest public listed firms. This study also focuses on one of the very developed and attractive stock markets in the world, the UK FTSE 350 stock index, that incorporates that largest 350 public firms.

PurposeThe worldwide spread of the coronavirus disease 2019 (COVID-19) has significant effects on financial markets and companies, causing an unprecedented level of uncertainty in reporting and auditing companies' financial statements. This study explores whether and how COVID-19 affects audit fees.Design/methodology/approachUsing a sample of 268 firm-year observations from the Omani capital market between 2017 and 2020, the ordinary least squares (OLS) regression with a robust standard error is applied to answer the research question of this study.FindingsThe authors find that the pandemic has a significant and positive association with audit fees and abnormal audit fees. This finding suggests that the threat of risk, complexity and legal liability circumstances resulting from the pandemic can be compensated by charging higher audit fees. In addition, the authors provide evidence that Big4 audit firms are those most responding to COVID-19 by charging higher audit fees. Finally, the authors conclude that large companies are less sensitive to the pandemic.Practical implicationsUsers of financial reports and audit firms should anticipate changes in the audit efforts resulting in increased audit fees during COVID-19. Thus, this paper may guide practitioners and businesses in determining the audit fees and associated costs of any potential pandemic.Originality/valueThe study results are among the earliest empirical insights into the effect of COVID-19 on audit fees in Oman.