Managerial overconfidence and audit fees

Document Type : Research Paper

Authors

1 Associate Professor of Accounting, Faculty of Accounting and Management, Allame Tabatabaei University, Tehran, Iran

2 Instructor of Accounting, Faculty of Humanities, Bozorgmehr University of Qaenat, Qaen, Iran

3 Assistant Professor of Accounting, Faculty of Accounting and Management, Allame Tabatabaei University, Tehran, Iran

Abstract

Overconfidence or excessive self-confidence in general can be defined as a groundless belief about individual’s cognitive abilities, judgments and intuitive reasoning. If the auditor recognizes these personality traits in managers and estimates the financial reporting risk to be excessive due to managerial overconfidence, he/she could demand higher audit fees to compensate for the additional audit efforts needed to reduce detection risk. On the other hand, due to the confidence in their firms’ financial reporting process, the overconfident managers choose negotiation as a way to demand less scope and pay lower fees to the auditors. This study aimed to investigate the effect of managerial overconfidence on audit fees. The statistical population consisted of firms listed on the Tehran Stock Exchange during the years 2007 to 2013. The results indicated a significant negative relation between managerial overconfidence and audit fees. The additional studies showed that managerial overconfidence has no significant impact on using industry specialist auditors.

Keywords

References

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