Assessing the Relation among Audit Detection Risk, Audit Market Competition Environment and Audit Services Fee

Objective: 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 assessin...

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Autor principal:	Mohammad Hassani
Formato:	article
Lenguaje:	FA
Publicado:	Shahid Bahonar University of Kerman 2021
Materias:	audit risk audit market share audit services fee Accounting. Bookkeeping HF5601-5689
Acceso en línea:	https://doaj.org/article/55b1418b064d4084afc560f2cd31a254
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record_format	dspace
institution	DOAJ
collection	DOAJ
language	FA
topic	audit risk audit market share audit services fee Accounting. Bookkeeping HF5601-5689
spellingShingle	audit risk audit market share audit services fee Accounting. Bookkeeping HF5601-5689 Mohammad Hassani Assessing the Relation among Audit Detection Risk, Audit Market Competition Environment and Audit Services Fee
description	Objective: 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. Methods: 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. Results: 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. Conclusion: 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.
format	article
author	Mohammad Hassani
author_facet	Mohammad Hassani
author_sort	Mohammad Hassani
title	Assessing the Relation among Audit Detection Risk, Audit Market Competition Environment and Audit Services Fee
title_short	Assessing the Relation among Audit Detection Risk, Audit Market Competition Environment and Audit Services Fee
title_full	Assessing the Relation among Audit Detection Risk, Audit Market Competition Environment and Audit Services Fee
title_fullStr	Assessing the Relation among Audit Detection Risk, Audit Market Competition Environment and Audit Services Fee
title_full_unstemmed	Assessing the Relation among Audit Detection Risk, Audit Market Competition Environment and Audit Services Fee
title_sort	assessing the relation among audit detection risk, audit market competition environment and audit services fee
publisher	Shahid Bahonar University of Kerman
publishDate	2021
url	https://doaj.org/article/55b1418b064d4084afc560f2cd31a254
work_keys_str_mv	AT mohammadhassani assessingtherelationamongauditdetectionriskauditmarketcompetitionenvironmentandauditservicesfee
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spelling	oai:doaj.org-article:55b1418b064d4084afc560f2cd31a2542021-11-04T19:57:05ZAssessing the Relation among Audit Detection Risk, Audit Market Competition Environment and Audit Services Fee2008-89142476-292X10.22103/jak.2021.15739.3240https://doaj.org/article/55b1418b064d4084afc560f2cd31a2542021-05-01T00:00:00Zhttps://jak.uk.ac.ir/article_2785_f578be21b50b4288e8e49eea9edb199d.pdfhttps://doaj.org/toc/2008-8914https://doaj.org/toc/2476-292XObjective: 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. Methods: 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. Results: 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. Conclusion: 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.Mohammad HassaniShahid Bahonar University of Kermanarticleaudit riskaudit market shareaudit services feeAccounting. BookkeepingHF5601-5689FAمجله دانش حسابداری, Vol 12, Iss 1, Pp 45-68 (2021)

Assessing the Relation among Audit Detection Risk, Audit Market Competition Environment and Audit Services Fee

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