Auditor Reporting and Audit Fees: The role of Business Strategies

Document Type : Research Paper


1 MSc, Department of Accounting, Hakim Nezami Institute of Higher Education of Quchan, Iran.

2 Assistant Prof, Department of Accounting, Faculty of Economics and Administrative Sciences, Ferdowsi University of Mashhad (FUM), Mashhad, Iran.

3 Assistant Prof, Department of Management, Faculty of Economics and Administrative Sciences, Ferdowsi University of Mashhad (FUM), Mashhad, Iran.


Objective: Firms with prospective strategy have a higher risk and lower financial stability than firms with a defensive strategy, which can affect the audit process. Since such companies are exposed to greater risk of auditing, their audit operations are conducted with a higher degree of conservatism. Applying more conservatism to prospective companies will increase the volume of auditing operations and further professional uncertainty in making audit judgments, which may ultimately influence the type of auditor's opinion, the number of audit report clauses, and the auditor's fees. Therefore, the main purpose of this study is to investigate the relationship between the type of business strategy of the firm with the auditor's report (type of comment and number of auditor's report) and audit fees with emphasis on both prospective and defensive strategies.
Methods: To achieve the purpose of the study, 127 companies listed in the Tehran Stock Exchange during 2011-2017 were selected. The research hypotheses were tested on the basis of multiple linear regression and logit regression.
Results: Findings show that there is a significant negative relationship between aggressive (forward) strategy and unadjusted audit report (acceptable). In fact, adjusted audit reports (contingent, declined and non-commented) are more likely to be issued by aggressive (prospective) companies. Also, there is a positive and significant relationship between defensive strategy and unadjusted audit report. That is, adjusted audit reports (conditional, declined, and non-commented) are less likely to be issued by companies with a defensive strategy. The results also show that there is a positive and significant relationship between aggressive (forward) strategy and the number of audit report bets but there is a negative and significant relationship between defensive strategy and the number of audit report bets. The results show that there is a positive and significant relationship between aggressive strategy and audit fee, but there is a negative and significant relationship between defensive strategy and audit fee.
Conclusion: The findings of this study indicate that business strategies can be one of the factors that auditors consider in their audit reporting and remuneration strategies. Such a finding can be helpful to corporate auditors and managers.


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