Managerial Overconfidence and Audit Fees

Overconfidence or excessive self-confidence in general can be expressed as a groundless belief about individual’s cognitive abilities, judgments and intuitions reasoning. If the auditor recognizes the personality traits of managers and the estimation of excessive financial reporting risk associated with managerial overconfidence, they could demand higher audit fees to compensate for the additional audit efforts needed to reduce detection risk. On the other hand, due to the confidence in their firms’ financial reporting process, the overconfident managers choose negotiation as a way to demand less audit scope and pay lower fees to the auditors. This study aimed to investigate the effect of managerial overconfidence on audit fees. The Statistical population consisted of firms listed on the Tehran Stock Exchange during the years 2007 to 2013. The results indicated a significant negative relation between managerial overconfidence and audit fees. The studies showed that managerial overconfidence has no significant impact on using industry specialist auditors.