Original scientific paper
https://doi.org/10.1080/1331677X.2020.1836990
Audit fees and earnings management: differences based on the type of audit
Juan L. Gandía
David Huguet
Abstract
In spite of the extensive research about the impact of audit fees
on audit quality, there is no research examining if the association
between voluntary audits and audit pricing affects audit quality.
Therefore, the aim of this paper is to empirically examine whether
the effect of audit fees on audit quality, measured by the level of
earnings management, is affected by the type of audit (voluntary
vs mandatory), as well as whether the effect of audit fees on
audit quality is different depending on the type of audit. Using a
sample of Spanish SMEs composed of both voluntarily and mandatorily audited companies, we find that voluntary audits have
higher quality when audit fees are lower, but the differences in
audit quality between voluntary and mandatory audits reverse as
audit fees increase, and mandatory audits are more effective at
deterring earnings management when audit fees are high.
Additional analyses show that voluntary audits do not directly
affect earnings management; instead, voluntary audits are associated with abnormal fees, which in turn negatively affect earnings
management. The results also show that audit fees are only negatively associated with earnings management when accruals are
income-increasing, which is related to auditor conservatism.
Keywords
Audit fees; audit quality; earnings management; voluntary audit
Hrčak ID:
301452
URI
Publication date:
31.12.2021.
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