Audit risk

This study examines the effect of deviation from industry norms (DIN) on audit fees. Further, this study examines the moderator role of external auditors’ characteristics (such as size, industry expertise and gender).

This study use a sample of 1,128 observations from companies listed on the Tehran Stock Exchange during the years 2014 to 2021. This information, which is in the form of an unbalanced panel (due to the non-disclosure of audit fees in some years), has been extracted from the financial statements and the board of directors reports at the comprehensive database of the Securities and Exchange Organization of Iran (CODAL).

The findings of this study show that firms with higher DIN pay more audit fees than other firms. By investigating auditors’ characteristics, the findings suggest that auditors’ industry expertise has a negative and significant impact on the relationship between DIN and audit fees. In other words, the positive effect of DIN on audit fees is less pronounced when firms are audited by industry expert auditors. However, the impact of auditors’ size and gender on the relationship between DIN and audit fees is not significant.

The results indicate that DIN is related to an increase in corporate risk, which in turn can affect audit risk and consequently audit fees. Also, industry expert’s auditors consider less audit risk and lower audit fee for such firms.

Related parties' transactions are one of the managers' most common opportunistic behaviors and always bring ambiguities. This kind of transaction may take away the rights of the minority shareholders and misuse the organization's economic resources for the benefit of a special group. Related party transactions are company transactions with persons or organizations affiliated with that company, Such as managers, board members, major shareholders, and subsidiaries. Transactions with related parties include buying, selling, and exchanging assets. In general, there are two different perspectives on the role and impact of related party transactions in companies: the perspective of transaction efficiency and the perspective of conflict of interest. Because related party transactions are difficult to audit and complex, companies may use these transactions to manipulate profits. This type of research shows that the quality of financial reporting is probably low in companies with more transactions with related parties. As a result, such companies will have to re-present financial statements. So, the related party transactions can be one of the factors affecting audit risk and auditors' acceptance of work. This study examines the effect of related party transactions on audit risk in companies listed on the Tehran Stock Exchange. The audit fee has been used as an audit risk indicator. Also, the moderating effect of the approved regulations on related party transaction disclosure has been examined. We make three main contributions: First, it leads to the expansion and development of the literature on research conducted in this field in the capital market of Iran. Second, considering that the regulations on related party transaction disclosure have not been examined within the scope of this research, this aspect is also innovative and can bring practical suggestions and research ideas for future researchers.  This research is applied in terms of purpose and descriptive correlation to answer hypotheses. The study's statistical population is all the companies listed on the Tehran Stock Exchange from 2006 to 2021. Using the screening method, the financial data of 112 companies were collected (1792 observations). A multivariate regression method based on panel data was used to test the research hypothesis, and Eviews software was used for data analysis. The results showed that related party transactions have a positive and significant effect on audit risk, and the approved regulations on related party transactions disclosure have caused a more significant impact of related party transactions on audit risk. These results argue that transactions with related parties have a positive and significant effect on audit fees, and the higher the amount of related party transactions in the studied companies, the more fees are paid for auditing because, in this case, auditors should make more efforts to reduce the audit risk caused by transactions with related parties. Because the existence of related party transactions increases the audit risk, identifying transactions with related parties and verifying the nature and volume of the transactions increases the auditors' risk, which increases the audit fee. In determining the audit fee, auditors consider the risk characteristics of their employer and cover the related risks through higher fees.  The result of this research confirms the conflict of interest view. Considering the positive relationship between related party transactions and audit risk, it is argued that the view of companies in doing transactions with related parties is based on conflict of interest and opportunism. Therefore, auditors consider audit risk at a high level and demand more fees for more effort to reduce audit risk. Also, regulations on disclosure of related party transactions positively strengthen the effect of related party transactions on audit fees. In other words, after the approval of the regulations on related party transactions disclosure in 2011, the effect of transactions with related parties on audit fees (audit risk) has increased. According to our research findings, independent auditors are recommended to consider the criterion of the value of transactions with related parties in determining the audit risk before acceptance and in the planning stage. Potential investors are advised to pay attention to the role of related party transactions in evaluating companies and making investment decisions. Also, it is suggested that the stock exchange organization should carry out sufficient supervision regarding compliance with the information disclosure requirements and the listed firms' approval of transactions with related parties.

Institutional investors are considered to be one of the main pillars of corporate governance, and the monitoring of managers is done more favorably with their presence. Sometimes, institutional investors temporarily focus their attention on some parts of their investment portfolio, and this causes that at the same time, the monitoring activities on some other companies are reduced. The issue is referred to as the deviation of the attention of institutional investors. In the current research, it has been discussed that when the attention of institutional investors is diverted from a company, whether this issue is taken into account from the point of view of independent auditors in the assessment of audit risk or not. For this purpose, 850 company-year observations (85 companies admitted to the Tehran Stock Exchange) have been collected during the years 2012 to 2021. In order to analyze the data, the panel data regression model and EViews 10 software were used. For this purpose, by using a suitable criterion to measure the deviation of the attention of institutional investors, its relationship with the audit fee and the delay of the auditor's report was investigated. The results of the research showed that the audit fee and the audit lag increase in periods when institutional investors temporarily focus their attention on other parts of their portfolio. Therefore, it can be said that the monitoring activities of institutional shareholders have led to the reduction of audit risk and this is in the interest of auditors. This paper also shows that the negative effect of investors’ limited attention on corporate monitoring can be somewhat mitigated by auditors.

Considering the auditors' responsibility and mission in the accreditation of financial statements and the adverse effects of corporate bankruptcy on society and the users of financial statements, this study aims to investigate the auditors’ conservatism hypothesis in responding to the client bankruptcy risk by estimating the bankruptcy risk. For the purpose of this study, data of 110 companies listed on Tehran Stock Exchange during the period 1386 to 1396 are collected from audited financial statements, official website of Tehran Stock Exchange and also Iranian Association of Certified Public Accountants. In order to test the research hypotheses, this study applies the multiple regression analysis as well as probit regression. This study finds that client bankruptcy risk has a significant positive effect on the conservative behavior of the auditors, which is reflected in auditor's report in the form of going concern uncertainty. However, the results indicate that audit fees has not affected by the client bankruptcy risk. In other words, auditors consider the effect of client bankruptcy risk on the audit risk. Therefore, auditors publish conservative reports in order to carry out their legal, social and professional responsibilities and to prevent the audit failure.

The purpose of this study is to investigate the reaction of auditors to Earnings volatility, for which the effect of earnings fluctuations on the audit report lag and auditing fees of companies listed on the Tehran Stock Exchange was investigated.In this study, to test the hypotheses, the required information related to the research variables was collected from the financial statements of 150 companies listed on the Tehran Stock Exchange during the period 1390 to 1399. To test the two research hypotheses, two multivariate regression models with panel data using random effects method were used.The findings of the test of research hypotheses indicate that in companies listed on the Tehran Stock Exchange, Earnings volatility has a significant positive effect on the audit report lag. Also, the research findings showed that Earnings volatility also have an effect on audit fees. Positive has meaning. The results indicate that in Tehran Stock Exchange, with the increase of Earnings volatility, the audit report lag increases. In fact, as profit volatility increases, the inherent risk of auditing increases, and auditors will conduct more content tests to reduce overall risk. Performing more tests by auditors will also increase the delay in submitting the audit report. The results also showed that with increasing Earnings volatility, the audit fee increases. As profit fluctuations increase audit risk, auditors should also be more diligent in their audit process, so increasing Earnings volatility leads to increased audit fees.

Audit risk arises when auditors give an unfavorable opinion on financial statements containing material misstatements. This risk is a combination of the risk of errors or significant distortions in the process of preparing financial statements (inherent and control risk) and the risk of not being discovered through the auditor's proceedings (non-discovery risk). The purpose of this research is to investigate and explain the relationship between product diversification and audit errors. This research was observed during the period of 2015 to 2019 and was carried out using logistic regression. The results of this analysis on the statistical sample of 143 companies that were selected by systematic elimination method indicate that there is a significant and positive relationship between product diversification and audit errors. It means that, when product diversification increases, the company is associated with information complexity, which according to agency theory will lead to an increase in information asymmetry, which will lead to audit errors.

Audit fee is a measure of auditor's economic dependence on clients which its assessment and determination requires a focus on the auditor's effort and related risks. This study analyzed the relationships between audit fee and audit risk in confronting with restatement and financial distress conditions. Statistical samples include 127 firms listed in Tehran Securities & Exchange during the March 2012 to March 2020 . The findings indicate that financial distress as a measure of client’s business risk has a significant and positive effect on audit fee; also, restatement of financial statements as a measure of audit risk has a significant and positive effect on audit fee. These results document that both those potential risk factors play a decisive role in determining audit fees. The results indicate that financial restatement and financial distress as potential risk factors can affect auditors' perceived risk and this event leads to change in auditors' behavior and change in audit fees. In client firms facing to financial restatement and financial distress, auditors assess the risk as high and , try to increase audit efforts, which in turn increases the audit fee. It was also theoretically argued that in distressed firms, financial restatement could be a more serious signal of perceived audit risk and change auditors' behavior by increasing the audit effort to identify material misstatement that would increase audit fees. Contrary to expectations, however, no significant evidence was found to confirm the stronger impact of audit risk on audit fees in firms facing to financial distress.

Risk-based auditing seeks to increase the efficiency and effectiveness of auditing, which can be seen as a process of identifying and reporting the risk of significant distortions in financial statements. . The purpose of this study is to evaluate the audit risk under the influence of corporate social responsibility disclosure. For this purpose, The audit risk assessment test is influenced by the concepts of corporate social responsibility. This study was conducted with 87 sample companies in a period of 7 years, 2012-2018, including 609 years, in a descriptive-correlational manner, with the implementation of a multivariate regression model. Then, by asking questions in pairs and hierarchical analysis (AHP), the importance of audit risk criteria was determined. The findings show that there is a significant negative relationship between disclosure of social responsibility and audit risk.The findings show that there is a significant negative relationship between disclosure of social responsibility and audit risk.

Risk-based auditing involves significant professional judgment in assessing the risk of material misstatement and identifying adequate and appropriate tests to achieve the desired level of audit risk. To assess the optimal level of audit risk, corporate governance structures are at risk of control. Which seems to be determined by management's attitude and personality towards internal controls and the quality of corporate governance. To this end, standard deviations from standards and norms, corporate pricing structure and the NEO Five-Person Scale were measured through the NEO Personality Inventory. Then, the importance of audit risk criteria was determined by paired questions and hierarchical analysis (AHP). The case study of this study is all companies listed in Tehran Stock Exchange in the year 1396. To test the conceptual model of research the structural equation modeling method with variance based on PLS software was used. The findings of the study indicate that there is a negative and significant relationship between board independence, managerial ownership, and audit risk. There is a negative relationship between institutional ownership, ownership concentration, and non-meaningful personality traits. There is a positive and significant relationship between board independence, institutional ownership, and ownership concentration with audit risk. Personality type and conscientiousness have no significant moderating role on the above relationships.

earning volatility، which indicates the degree of uncertainty of corporate earnings; One of the factors affecting the audit risk is known and according to research، has a positive role in determining the audit fee. The purpose of this study is to answer the question of whether auditors claim only a premium risk that is not related to the extra effort or due to more effort، they consider themselves entitled to receive a higher fee، or a combination of both factors is involved in this case simultaneously.

The present study is descriptive-correlational study، in terms of purpose applied and using a Ex-Post Facto approach. It is a period from 2014 to 2018 that after screening، the population is limited to 970 firms-years. In this study، using the concurrency estimation approach، the competitor hypotheses of the relationship between earning volatility and lag in the audit report on the one hand and its relationship with the audit fee on the other hand have been investigated.

A significant relationship was observed between earning volatility and audit fees. But no significant relationship was observed between earning volatility and audit report lag. The findings only show that the relationship between earning volatility and audit fees is strengthened in cases where the audit report is issued lag. There was also evidence of a significant positive relationship between audit report lag and audit fees.

Auditors who issue an audit report with more time، without necessarily delay in reporting be response to earning volatility، are only claiming more risk premium.

 The contribution of this study to the development of the existing literature is to explain the distinction between audit fees and audit report lag in reflecting the overall audit risk and to introduce earning volatility as representing the auditor's understanding of inherent risk.

The purpose of this study is to explain the model of auditor trust in the client with an emphasis on pathology and presenting a strategy using a qualitative research method and grounded theory approach. This study was conducted in 1398 by conducting 12 in-depth interviews with partners of auditing institutes, members of the Iranian Society of Certified Public Accountants and the Audit and Management Organization of Corporations. The findings showed that: The most important consequence of the auditor's trust in the auditor is increased audit risk, increased litigation, decreased audit quality and reporting quality, damage to the audit profession, and ultimately reduced social trust. According to the experts, the most important solutions to the problems mentioned are a clarification of laws and standards, supervision and support of competent authorities, focus of the audit market, quality control, restructuring of audit institutions, improvement of cultural conditions, the effectiveness of audit committees.

Qualitative research has identified numerous indicators of audit committee effectiveness having not already enacted in current regulations and requirements related to the audit committee. In the first step, this study investigates the viewpoints of independent auditors to achieve key indicators of audit committee effectiveness. In the second step of the study, it deals with the relationship between the effectiveness of the audit committee based on the list of independent auditors (resulting from the first step of the research) and the effectiveness of the audit committee based on legal requirements with audit risk from the perspective of partners and managers of audit firms. Logistic regression is used. Based on the results, there is a significant negative relationship between audit committee characteristics based on statutory requirements and audit risk. There is also a negative significant relationship between audit committee characteristics based on the list of auditors and audit risk. However, in low-risk companies, the ratio of effectiveness of audit committee-based features to a selected list of auditors was about twice that of high-risk firms. It can be stated that independent auditors get more attention to the characteristics of an effective audit committee based on the list of auditors selected than to the list of statutory requirements in assessing customer audit risk.

Linguistic features of information provided by business unit management could facilitate the goals of the transmission of economic facts. In recent years, these characteristics have always been considered in research in the field of accounting and behavioral finance. Therefore, this study seeks to examine the effect of financial reporting tone on audit fees. The sample consists of 63 companies listed in Tehran Stock Exchange for the period from 2012 to 2019. Financial reporting tone is measured using the model introduced by Muhammad et al (2019). Also, a natural logarithm is used to measure audit fees. The data are analyzed and the hypotheses are tested based on the multivariate regression model and panel data. The findings show that financial reporting tone has a significant negative effect on audit fees. In other words, if the financial reporting tone conveys an optimistic tone, the audit fee will be less. Results indicate that financial reporting tone reflects factors that auditors consider in assessing audit risk.

Audit report and its on-time issuance has information content for users. In this research, the relationship between the accounting information comparability as a qualitative feature of financial information has been tested with the audit delay and audit opinion. To measure accounting comparability, the Defranco et al. Model (2011) has been used. . In order to investigate the issue, a sample of 115 companies listed in Tehran Stock Exchange between 2014 -2018 (575 company-year) was selected and data were analyzed by panel method using regression analysis. The results of the research shows that there is a negative and meaningful relationship between the accounting comparability and audit delay and the number of explanatory paragraphs in the audit report. This conclusion can be interpreted in terms of inherent audit risk and information efficiency, since it reduces the audit risk and information acquisition costs. In short, the comparability of accounting information improves the usefulness of accounting information for independent auditors and improves the audit quality.

Auditing is considered as an effective way to limit the powers of managers in contractual relations. The financial statements also provide much of the information needed by the company's investors and creditors. If the information contained in these reports is not of the required quality and is complex, the risk of auditing increases. Therefore, the purpose of this study is to investigate the relationship between audit quality and audit risk. The statistical population of this study is the companies listed on the Tehran Stock Exchange and to achieve the purpose of the research, by applying filtering, the data of 163 companies listed on the Tehran Stock Exchange and in the period 2011-2019 using multivariate linear regression are reviewed and analyzed. Findings showed that audit quality has a negative and significant relationship with audit risk. In other words, as the quality of the audit increases, so does the audit risk. Findings of this research develop the literature related to the quality of financial reporting and consequently the audit process and risk and finally the quality of auditing.

External auditors play an essential role in enhancing the quality of accounting information and reducing the information asymmetry problem between inside & outside stakeholders such as shareholders, creditors and managers. Audit fee is one of the most important indicators for assessing the audit quality. Audit fees consist of two components which are audit resource costs and risk premiums. Audit resource costs are related to the amount of audit efforts took in auditing and the risk premium is a compensation for risk taking. Under risk-oriented auditing, audit risk is that auditors are really concerned about. Audit risk model consists of three components which are inherent risk, control risk and detection risk. In addition, prior studies suggest that the relation between audit market competition and audit quality can be either positive or negative, depending on whether higher concentration results in decreased costs of telling the truth and thus increased audit efforts and audit fees. Numerous studies have examined the impact of audit risk and audit market competition on audit fees with mixed results. This paper analyzed the relation among audit risk, audit market competition environment & audit services fee. So, it investigated the impact of some features related to auditors on the pricing of audit services. The probability of 2nd type error is considered as a proxy of audit detection risk and audit market share is considered as a proxy of audit competition environment.

Statistical analyses include 131 firms which listed in Tehran Securities & Exchange over the period 2013 to 2019. Research data includes 917 firm-year observations. Research hypotheses have assessed through multivariate regression models using panel data with fixed effect and generalized least squares method.

According to the findings, there is meaningful and negative relation between audit services fees and 2nd type error as a proxy of audit detection risk. In addition, evidence indicated that there is meaningful and positive relation between audit services fees and audit market share as a proxy of audit competition environment. Other evidences documented that audit services fee is a direct function of auditor opinion, auditor reputation, audit complexity, audit committee independence, board leadership and loss, but it is an inverse function of auditor rotation, board independence, ownership concentration and leverage; however it is not a meaningful function of board activity.  

As a whole, research evidences suggested that some features related to auditors and some features related to clients rely on supply & demand based perspectives have an important role in determining the effective factors on audit fees. Detection risk results in the auditor's conclusion that no material errors are present where in fact there are. Evidences showed that there is an inverse relationship between detection risk and audit quality: if detection risk is high, lower the audit fee as a proxy of audit quality and if detection risk is low, generally increase the audit fee. Empirically, previous studies examining the association between audit market competition environment and audit quality provide mixed results. It is, therefore, important to understand the various relationships between audit market competition environment and audit quality to prevent regulatory intervention from producing potential unintended consequences. Findings documented that high level of audit market share lead to more the audit fee and low level of audit market share generally decrease the audit fee.

Understanding the client accounting process and its internal control systems requires professional judgment in planning the audit and developing an effective approach designed to ensure that the overall audit risk is reduced to an acceptable level. The operational inefficiency and quality of financial reporting are negative consequences of the weakness of internal controls, which are likely to be due to the type of managers' personality type. The purpose of this study is to Presenting the Pattern of Impact of the weakness of internal controls on Audit Risk with Emphasis on the Moderating Role of Personality Types.. Criteria for deviation from standards and laws, weak internal controls, and the neo-five-point personality were used. The study was conducted with 87 sample companies over a 6-year period from 2012 to 2017, including 522 years. The importance of audit risk criteria was then determined by paired questions and hierarchical analysis (AHP). The findings of the study indicate that there is no significant relationship between weaknesses of internal control and audit risk. Among neo-personality dimensions, only extraversion and conscientiousness have positive and significant relationship with weakness of internal controls and audit risk. They have no significant relationship with it.

According to the Auditing Standards، the entity may attempt to disclosing financial and non-financial information about its operation، and the auditor is required to evaluate this information. Social responsibility performance is typically included in this regard، and the independent auditor should attention to such specific information in adequately assessing audit risk. The primary purpose of this academic paper is to promptly investigate the possible relationship between social responsibility disclosure and audit risk in the Tehran Stock Exchange. In this regard، the content analysis method is used to measure social responsibility disclosure، and audit risk is calculated by the audit fees. To examine the hypotheses، Based on a sample of 93 firms data are gathered covering the period 2012–2019 applies ordinary least squares regression (OLS). We subsequently observe a direct association between social responsibility disclosure and audit risk. This relationship is confirmed in a sensitivity analysis employing panel methods with random effects as well as generalized least squares. Expanding the disclosure of social responsibility may end in the higher audit risk; hence، audit fees increase. This issue warns users of financial statements، including investors، that attention to not only the positive aspects of social responsibility disclosure in Iran forgetting social responsibility disclosure can be used as a mechanism to conceal poor performance.

The aim of this study is to investigate the relationship between the debt leverage and the audit fees in the Tehran Stock Exchange. We considered the impact of the operating and financial liability leverage variables. In addition, the existing association between the mentioned variables and the audit fees was examined.

In this research, the statistical population is 113 firms during the periods of 2011 to 2018 years. We used the multivariate regression to examine the relationship between research variables.

Considering the results, the total debt leverage, the financial leverage, and the estimated operating liability leverage have positive and significant nexus with the audit fees. The high liability leverage increases the risk of client failure and the risk of auditor litigation; the auditors react to these risks and increase audit fees. Also there is no tie between changes in all debt leverages and changes in audit fees. The additional tests in study show that the higher level of total debt leverage and the financial leverage in small and large firms raise the audit fees. Since the financial leverage in situation of financial distress is high, the auditors with higher fees decrease the audit risk. Based on the results we can see there is also a positive and significant link between the total debt leverage, the financial leverage, and the estimated operating liability leverage with the abnormal audit fees. As well, the delay's relationship in presentation of the audit report as a measure of the auditor's effort with their interactive effect with leverage has no influence on the audit fees.

This article investigated the Distinction between different types of leverages in audit studies. The results show this paper adds to the existing literature in the accounting and auditing context, particularly, agency theory field. As the higher debt leverage has relation with lower-quality earnings and the higher-risk audit, the conflict of interest occurs between the shareholders and the managers. The auditors have the important role in resolving this conflict of interest by examing the financial statements. According to the findings of this study, it can be suggested that recognizing the different sources of leverages and the distinction between financial and operating leverage is important in auditing research, especially audit fee models. Therefore, the clients and audit firms interested in estimating the audit fees accurately can utilize the appropriate model, that is, this study has provided a unique insight into the literature in the context of audit fees