Analysis the relationship between Audit Fees & Audit Risk considering Restatement and Financial Distress

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.