High Audit Fees Impair Audit Quality Accounting Essay


The purpose of this article is to provide a literature review on audit quality and fees. Its offer Many articles show studies of audit quality and fees and relation between them from 2007 To 2012 in different countries. Illustrate the importance of this subject and how Kingdom Bahrain respond to it, and its impact on firms.

The goal of audit quality, fees to detect client financial report, material misstatement and production of financial report.

To Fully summarize all of the research that has been conduct in this field would be impossible. what we do is an attempt to provide summary of this researches that has taken place on the key topics which have emerged in term of both the cases of audit fees, audit quality and relation between them.

The First Article

High Audit Fees Impair Audit Quality?

By: Jong-Hag Choi, Jeong-Bon Kim, and Yoonseok Zang, 2010

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This study search whether how audit quality with the absolute accruals is associated with abnormal audit fees, so there is difference between actual audit fee, expected and normal level of audit fee The results show of various regressions reveal that the association between the two is asymmetric depending on the mark of the abnormal audit fee

For notices with negative abnormal audit fees, there is no important relation between audit quality and abnormal audit fee In contrast, abnormal audit fees are negatively related with audit quality for observations with positive abnormal audit fees our result propose that auditors' incentives to prevent biased financial reporting change systematically, depending on whether their clients pay more than or less than the normal level of audit fee. Our results are strong to a range of sensitivity checks.

Second Article


By: Rita Yuniarti, 2011

This reading aims to inspect the determinant factors of audit quality by proposing the hypothesis that the audit firm size (size public accounting firm) and audit fees (audit fees) have an effect on the audit quality In this reading, the unit of analysis is the external auditor who has worked in (Certified Public Accountant).

the experimental test showing that the CPA firm size does not extensively affect to audit quality in public accounting firm in Bandung, whereas the quantity of audits extensively affect to quality of audit and together CPA firm size and audit fees do not significantly affect to quality of audit in public accounting firm in Bandung..

Suggestion to this reading audit quality should be increase audit fees[ estimate operating cost in audit process] Also increase employee number. Moreover there is other variables outside CPA (firm size, fees) like individual culture, dysfunctional behavior.

Third Article

Audit fees empirical evidence from emerging economy.

By: Kamal Naser, Hamed abdullahameed and Rana Nuseibeh, 2007

This study discuss the audit fees in the emerging economy. based on research corporate size, status of audit firm, industry type, degree of company and risk the main determine of audit fees.

Corporate size: Auditors deals with large corporation spend more time on their transactional audits and pay high to auditors

Status of audit firm effect the quality of corporate report since the audit companies affiliated with big national audit company.

high audit fees result high corporate risk " positive relationship".

in the other hand the previous study showing other variables such corporate profitable is performance management, efficiency of allocating variable resource can be positive or negative relation with audit fees , time lag in accountant and they use asset proxy of corporate size also the number of employee influence the size of corporation. The unique environment(political and economic instability) affect corporation.

Fourth Article


By: Ely Suhayati, 2012

Objects of this study are the audit fee, audit time budget pressure, public accountant's attitude, public accountants dysfunctional, and audit quality.

The competition between public accounting firms increase competition in biddings that effect the audit fee. Its lead to influence audit time budget pressure that will cause public accountants dysfunctional behavior and attitude in performing the public accountant duties which results low quality.

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Our study result is Audit Time Budget Pressure influence accountant specially an audit in the end of the year "very strict time" so accountant must have self confidence and positive attitude.

Audit time Budget pressure should be used in most significant and effective way to increase the work to produce high quality. quality review is very important factor for the public accounting firms be strong and big.

Fifth Article

The Relationship Between Audit Client Satisfaction and Audit Quality Attributes

By: Takiah Mohd. Iskandara, Mohd. Mohid Rahmat b, and Hashanah


This study search for client satisfaction over audit services as perceived by the company management and its relationships with audit quality attributes the study between big 4 and non big 4 Audit companies.

The objective is to obtain client audit quality attribute that related to audit firm and audit team.

This research found that the previous study in the difference in audit quality by size of audit firm exit in litigious environment. client focus on reputation of audit firm rather than recognition of audit team. The term of audit team quality attributes shows " client happiness is related with audit team experience is complete the audit in timely manner, independence, ethical, standard and knowledge of account and auditing". Also This study show us that audit clients focus more on the completion of audit work in order to meet the statutory requirement rather than the quality of the audit work.

Finally the base of this study to use client satisfaction to reflect audit quality and limitation of this study is unable to include more subject which may influence the perception of auditors.

Sixth Article


By: Parveen P. Gupta, 2009

This studies examines whether auditing industry practices (charging low fees) which in turn compromises auditor independence and audit quality

Result of this study suggest that audit quality is lower when audit fees less than expectation and vice versa. Our goal of this research to study negative audit fees and the measure of audit quality and the Prior

study discover that audit fee is positively associated with auditor type,

client size, merger or acquisition activities, leverage, return on assets, accounts receivable and inventory and losses.

Seventh Article

Does mandatory auditor rotation improve audit quality?

Mara Cameran and Annalisa Prencipe, 2008

This project study the influence of auditor tenure and auditor change on audit quality in a unique mandatory audit firm rotation environment.

The result of this study:

if voluntary change of auditor it's an negative signal in mandatory environment. The change in mandatory influence audit quality ,the study suggest that auditors need time to know all details of the business of client so audit quality raise. In this study they used to type of accruals: Abnormal Working Capital Accruals and Current Accruals.

This study found that audit quality is positively related to audit tenure in our mandatory setting. There is a mandatory and voluntary change of auditor. the mandatory changes of auditor tend to follow violent accounting policies but the voluntary tend to be more conventional.

Eighth Article

Auditor Independence in a Private Firm Setting

Ole-Kristian Hope and John Christian Langli, 2007

In this study examined Whether auditor in private firm in exchange for retaining client pay more fees for audit and non audit service. Also This study investigate about relation between audit fees and auditor propensity with audit opinion.

Audit report help to find mistake and problems and used like warning for client with auditor opinion of performance of client business.

The result of this study show, They can't distinguish between reputation or litigation effect. potential policy implications of this study Regulators can't pass new regulations fast that might be negative consequence and restricting auditors action. This study couldn't control all impact between fees and issue of qualified audit opinions.

Ninth Article

Audit quality and the relationship between auditee's agency problems and financial information quality

By: Johanna Miettinen,

This article examines studies of audit quality and relationship between audit agency problem and financial information quality. Audit quality is positively related with both audit agency problem and financial information quality, Also Audit quality determined by audit fees and non-audit fees but agency problem measure by leverage, cash flow.

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In addition to the result of this article, there is positive relationship between total fees and leverage also total fees with cash flow.

Finally this study provide evidence that auditing is a monitoring tool which Minimize management to exercise discretion over accounting issues.

Difference between the current study and previous studies:

As we talked earlier on the audit quality and fees and the relation between them positive or negative and how audit quality impair by audit size, number of employee and individual culture. Also audit fees impair by industry type, time spend on audit and review.

In addition to that there is other factors influence the quality and fees of audit like standards, knowledge of the team of audit and reputation of the firm.

This study differ than the previous studies that this study well applied in the Kingdom of Bahrain.

There has been increase and competition between audit firms in Kingdom Bahrain in recent years with highest standard, Laws and regulations.

The aims to provide the comprehensive and new classification of research about the audit quality and fees for serving clients need.

Based on finding of the empirical study and development of the particle model of audit quality and fees, the new studies proposed wishing to improve audit fees and quality in Kingdom Bahrain

To increase quality of financial report, information must present classified clearly and without mistake to understand their meaning,(IASB, 2008).

If financial report presented well organized then it will be easier to understand and to find specific information. Moreover notes on balance sheet and income statement will provide more explanation and understandability of earning figure (Beretta & Bozzolan, 2004).

Comparability is important tool that help client to identify the similarity and differences between two phenomena, also it consistency within a company used the same account policies and producers from period to period(Vincent & Schipper, 2003) .

Companies will need to change judgements, estimate and policies if they found new information or regulation. For example, estimate may change if they found new available information which encourage reconsideration of expected life time of certain asset.

In 2005 new set of rules and legislation, so many EU listed companies transformed from Local GAAP to IFRS, It very important to explain how these result influence the previous result. IASB, 2006;

Even with stable account policies and judgment company need to compare the result of different years, To get better comparability of financial reporting information.

Furthermore "Timeliness" is when information available to decision makers before it loses the ability to affect decisions, It's also the time it take to discover the information.

when examining annual report to quality of information, timelines measure by natural logarithm of amount of days between year end and the signature of the auditors' report after year end is calculated

Auditing standards admit the occurrence of audit risk from the incapacity of auditor to observe all transactions, Audit standards can reduce the risk with engage in certain activities. Auditor can reduce the risk of inaccurate and incorrect opinion in several ways: not deal with risky clients, Identify the risky area by understand every details of the business , time of auditing, guarantee efficient review within the firm, increase the employment of qualified staff and some of the financial statement not stratification with GAAP. So the incorrect auditor opinion is occur of audit failure or we can say low audit quality, But auditors have several ways to limit the audit risk as discussed earlier.

Direct measure of audit quality:

Financial reporting submission with GAAP or IFRS, Its the Auditing Standard , Fieldwork standard and report standard, the Direct measure of audit quality. Arezoo Aghaei chadegani,2011

Indirect measure of audit quality

* The length of the relationship between client and auditor called "Auditor tenure" is influence the objectivity and identification of misstatements in the financial report. The identification of misstatement risk is in short auditor tenures while the objectivity of misstatement for long auditor tenure.

Auditor tenure need to evaluation because its new on the Public Companies Accounting Oversight Board and may it consider as existing active standards or active role in the auditing. Sometimes long relationship between client and auditor case a coverage of corporate scandals .

* Industry expertise is very important to measure and identification the misstatement in the financial report, high level of technical capacity in industry and the specialist of auditor can reduce the ability of mistake.

Angela M. Woodland,2003

* Size of audit firm divided into large and small based on number of member and client served. Large account firm must have for 3 years 10 members of the public accountant, Mustafa 2009

The Big audit companies is tend to spend more time for the complex transactional audit, Its observe by public for industrious performance and it expected to charge high audit fees. Big companies can afford employ expensive employees. Hence, Companies like to work with the Big audit companies that have high fees than the ordinary for the prestigious .

Big companies play in financial market to raise funds so it need to employ large sized prestigious audit firm, serve high quality and credibility. Big companies have financial analyses need to disclose information in details, so more audit will be helpful. Kamal Naser, Hamed abdullahameed and Rana Nuseibeh 2007

Other study found that audit size is variable factor to determine audit fees through total assets Matthews & Peel, 2003) or sales and total assets (Chung & Narasimhan, 2002).

Audit fees and audit hours are positively related to large public sector organizations because they need to spend independent time and effort from auditor to dale with more financial statements (Deis & Giroux, 1996).

* Corporate complexity: Big companies that have many subsidiaries/branches need more time for checking and studying financial statement to guarantee the reliability of consolidated statements, Also the subsidiaries/branches must respond to the report requirement in the countries which operate (Sandara and Patrrick ,1996).

The result of the various level in materiality of subsidiaries/ branches and the parent company from Variations of financial report requirements. So they will need to work more with professional employee that would increase audit fee. complex companies need to check group intra transactions so audit fees expect to increase for auditors (Chan et 1993).

(Firth, 1997) reveal that relationship between organizational complexity and audit fees is weak or not important.

* Corporate profitability

* Finally the audit fees direct impact audit quality, Audit fees linked with duration of time that worked, It's also the value of service to clients (Tia 2008).Audit market competition raised the audit fees and effect the audit quality( Jansen and Payne 2005).

so we can say that time of auditing affect the audit fees.

Abnormal Audit Fees and the Asymmetric Effect on Audit Quality:

when the auditor receive abnormal audit fees, This may allow client to pressure on auditor for the engage opportunistic earnings management, Then auditor loss their reputation.

If audit fees is lower than normal, Client should accept substandard of quality report, Because its not profitable for auditor or not great to cover the expected cost.