Asymmetric Reactions of Abnormal Audit Fee Jumps to Credit Status Changes

Although extensive literature exists on abnormal audit fees, their determinants remain relatively underexplored in contemporary accounting and auditing research. Audit fees have attracted the attention of standard developers, investors, and researchers. Recent studies highlight a growing perspective that the role of abnormal audit fees in shaping audit report quality has become increasingly contentious. In addition, credit status significantly affects abnormal audit fees. This study aims to investigate the asymmetric reactions of the abnormal audit fees component to changes in credit status.

Considering the data collection method, the current research is descriptive. Descriptive research is carried out to better understand the existing conditions or help the decision-making process. According to the different categories of descriptive research, the current research is of correlational type. To test the research hypotheses, data was gathered from 120 firms listed on the Tehran Stock Exchange from 2014 to 2022. Finally, to examine and analyze the proposed hypotheses according to the theoretical foundations, the regression approach was applied.

The analysis of the first research hypothesis shows that the reduction of credit status has a positive and significant effect on abnormal audit fees. The second hypothesis of the research is that any decrease (increase) in the credit status has a positive (negative) and significant effect on the variable (short-term) part of the abnormal audit fee. The third research hypothesis, which claimed that bankruptcy risk significantly affects the relationship between the reduction (or increase) of credit status and the variable (short-term) component of the abnormal audit fee, was rejected. Finally, the results indicate that the risk of significant distortion has a significant effect on the relationship between the reduction (increase) of the credit status and the variable (short-term) part of the abnormal audit fee.

Based on the results, it can be concluded that as profit manipulation by the owners increases, the credit status of the companies declines. Auditors exert greater effort when dealing with owners who engage in manipulation, have a high likelihood of fraud, and exhibit low-profit quality, leading them to demand higher fees. In this regard, any decrease in credit status can result in problems, financial limitations, and the risk of bankruptcy in the future. Finally, higher profit quality attracts investors, leading to increased opportunities for financing.