Audit Fees: A Further Evidence of the Role of Financial and Operating Liability Leverage

Document Type : Research Paper


1 Assistant Prof., Department of Accounting, Ayandegan Institute of Higher Education, Tonekabon, Iran.

2 Assistant Prof., Department of Accounting, Imam Khomeini International University, Qazvin, Iran.


Objective: The aim of this study is to investigate the relationship between the debt leverage and the audit fees in the Tehran Stock Exchange. We considered the impact of the operating and financial liability leverage variables. In addition, the existing association between the mentioned variables and the audit fees was examined.
Methods: In this research, the statistical population is 113 firms during the periods of 2011 to 2018 years. We used the multivariate regression to examine the relationship between research variables.
Results: Considering the results, the total debt leverage, the financial leverage, and the estimated operating liability leverage have positive and significant nexus with the audit fees. The high liability leverage increases the risk of client failure and the risk of auditor litigation; the auditors react to these risks and increase audit fees. Also there is no tie between changes in all debt leverages and changes in audit fees. The additional tests in study show that the higher level of total debt leverage and the financial leverage in small and large firms raise the audit fees. Since the financial leverage in situation of financial distress is high, the auditors with higher fees decrease the audit risk. Based on the results we can see there is also a positive and significant link between the total debt leverage, the financial leverage, and the estimated operating liability leverage with the abnormal audit fees. As well, the delay's relationship in presentation of the audit report as a measure of the auditor's effort with their interactive effect with leverage has no influence on the audit fees.
Conclusion: This article investigated the Distinction between different types of leverages in audit studies. The results show this paper adds to the existing literature in the accounting and auditing context, particularly, agency theory field. As the higher debt leverage has relation with lower-quality earnings and the higher-risk audit, the conflict of interest occurs between the shareholders and the managers. The auditors have the important role in resolving this conflict of interest by examing the financial statements. According to the findings of this study, it can be suggested that recognizing the different sources of leverages and the distinction between financial and operating leverage is important in auditing research, especially audit fee models. Therefore, the clients and audit firms interested in estimating the audit fees accurately can utilize the appropriate model, that is, this study has provided a unique insight into the literature in the context of audit fees


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