The impact of corporate tax risk on audit fee

Document Type : Research Paper


1 Professor in Accounting, Shahid Bahonar University, Kerman, Iran

2 PhD Student in Accounting, Shahid Bahonar University, Kerman, Iran


Auditors use several factors for pricing of audit services. Theoretically, corporate risk and complexity are the main factors affecting audit fees. The purpose of this study is to evaluate the impact of corporate tax risk on audit fees. This risk is quantificated through the company's effective tax rate. In this regard, if the effective tax rate is lower, tax avoidance is considered higher. For this purpose, a sample of 62 companies listed on TSE from 2009 to 2014 is selected. Research hypotheses have been examined using regression analysis. Results show that a significant negative (positive) correlation exists between effective tax rate (corporate tax risk) and audit fees. In other words, if the corporate tax risk is higher, audit fee will be more. Furthermore, the results reveal a significant positive relationship between firm size and reported loss with the audit fees and a negative significant relationship between financial leverage and unqualified audit opinion with the audit fees.


Accounting Standards Setting Committee. (2012). Auditing Standards. Tehran: Audit Organization. (in Persian)
Accounting Standards Setting Committee. (2014). Accounting Standards. Tehran: Audit Organization. (in Persian)
Al-Harshani, M. O. (2008). The pricing of audit services: evidence from Kuwait. Managerial Auditing Journal, 23(7): 685-696.
Arabmazar, A.A. & Dehghani, A. (2010). An Estimation of Business and Profession / Corporate Income Tax Efficiency in Provincial Tax Offices. Journal of tax research, 17(7): 45-64. (in Persian)
Ayers, B., Laplante, S. & Mcguire, S. (2010). Credit Ratings and Taxes: The Effect of Book–Tax Differences on Ratings Changes. Contemporary Accounting Research, 27 (2): 359-402.
Banimahd, B., Moradzadeh, M. & Zeinali, M. (2013). Effect of audit fee on audit opinion. Management Accounting, 15(5): 41-54. (in Persian)
Bell, T., Landsman, W. & Shackelford, D. (2001). Auditors’ Perceived Business Risk and Audit Fees: Analysis and Evidence. Journal of Accounting Research, 39 (1): 35-43.
Donohoe, M. & Knechel, R. (2014). Does corporate tax aggressiveness influence audit pricing? Contemporary Accounting Research, 31 (1): 284-308.
Dunn, K. & Maydew, B. (2004). Audit firm industry specialization and client disclosure quality. Review of Accounting Studies, 9(1): 35-58.
Dyreng, S., Hanlon, M. & Maydew, E. (2008). Long-run corporate tax avoidance. The Accounting Review, 83 (1): 61-82.
Graham, J., Raedy, J. & Shackelford, D. (2012). Research in accounting for income taxes. Journal of Accounting and Economics, 53(1-2): 412-434.
Gul, F. A., Chen, C.J.P. & Tsui, J.S.L. (2003). Discretionary Accounting Accruals, Managers’ Incentives, and Audit Fees. Contemporary Accounting Research, 20 (3): 441-464.
Hanlon, M. & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50(2-3): 127-178.
Hanlon, M. & Slemrod, J. (2009). What Does Tax Aggressiveness Signal? Evidence from Stock Price Reactions to News about Tax Shelter Involvement. Journal of Public Economics, 93(1-2):126-141.
Hanlon, M., Krishnan, G. & Mills, L. (2012). Audit fees and book-tax differences. Journal of the American Taxation Association, 34 (1): 55-86.
Hassasyeganeh, Y. & Alavi Tabari, S.H. (2004). The relationship between Resources spent for internal control and audit fees. Empirical Studies in Financial Accounting, 1(4): 71-96. (in Persian)
Hay, D. W., Knechel, R. & Wong, N. (2006a). Audit fees: A meta-analysis of the effect of supply and demand attributes. Contemporary Accounting Research, 23 (1): 141-191.
Hejazi, R., Gheitasi, R. & Gheitasi, T. (2012). The impact of accruals and cash flows on audit pricing. Accounting and auditing research, 4(13): 62-77.
(in Persian)
Khodadadi, V., Ghorbani, R. & Khansari, N. (2014). Investigating the Effect of Ownership Structure on Audit Fees. The IranianAccounting and Auditing Review, 21(1): 57-72. (in Persian)
Krishnan, G. & Visvanathan, G. (2008). Do auditors price audit committee’s expertise? The case of accounting vs. non-accounting financial experts. Journal of Accounting, Auditing & Finance, 24(1): 115-144.
Malekian, E., Ahmadpour, A. & Talebtabar Ahangar, M. (2013). The relationship between some corporate governance mechanisms, audit fees and meter owneship of companies listed in Tehran Stock Exchange. Journal of financial accounting research, 4(4): 37-50. (in Persian)
Nikbakht, M. & Tanani, M. (2010). Test of factors influencing financial audit fees. Journal of financial accounting research, 2(2): 111-132. (in Persian)

Rajabi, R. & Mohammadi Khashooei, H.(2008).Agency Costs & Independent Audit Services Pricing. The Iranian Accounting and Auditing Review, 15(4): 35-52. (in Persian)

Seetharaman, A., Gul, F. A. & Lynn, S. G. (2002). Litigation risk and audit fees: Evidence from UK firms cross-listed on US markets. Journal of Accounting and Economics, 33 (1): 91-115.

Simunic, D. )1980(. The pricing of audit services: Theory and evidence. Journal of Accounting Research, 18 (1): 161-190.