The Regulation of Audit Services Fees, the Type of Audit Firm and Audit Report Lag: The Analysis of the Bargaining Power and Auditor’s Effort Theories

According to the theories of bargaining power and the auditors’ effort, by increasing the bargaining power of the auditor, it is possible to increase the audit fee. Consequently, Further effort is provided by the auditor,which affects the audit report lag. In this way, the Iranian Association of Certified Public Accountants (IACPA), for the first time in 2015, enforced the Regulation of Audit Services Fees (determining audit fees based on budget of each project and by taking to account the overhead costs of the audit firm) for its members. In the absence of sufficient theoretical and empirical evidence on the consequences of the regulation of audit services fees on the audit report lag (ARL) and the moderating effect of the type of audit firm on this relationship, the purpose of this study is to investigate the role of this regulation on ARL, due to the bargaining power and auditor’s effort theories. Therefore, 3058 firm-year observations collected from the annual financial reports of companies listed on the Tehran Stock Exchange as well as the OTC of Iran between 2012 and 2019, are examined. The results of motivate analysis show that the de jure compliance with the regulation instead of the de facto compliance and there is no significant relationship between the regulation of audit fees and ARL. but the type of audit firm moderates the relationship. That is, the regulation of audit fees has a positive association with ARL when the auditor is a first-ranked trusted audit firm. The findings of this study indicate that the regulation of audit fees could not be played as a driver to increase the audit budget, audit effort and audit report lag.