Dissertation on the study of the impact of corporate governance on audit fees of companies listed on the Tehran Stock Exchange

Academic Thesis for Master's Degree in Accounting

Abstract:

Audit institutions have important theoretical and empirical concepts for determining audit fees. They use various factors for the pricing of auditing services, and many researches have been done in relation to the identification and evaluation of these factors. The factors considered in most studies include risk factors, volume and complexity of the unit's operation. One of the important factors in determining audit risk is the structure of corporate governance, which should be taken into account. Of course, it is not yet clear whether corporate governance has an effect on audit fees or not, and if so, how it affects audit fees. There are at least two arguments about the relationship between corporate governance and auditors' fees. In the first argument, it is assumed that the internal structure of corporate governance of companies is complete. As a result, agency costs and risk of audit institutions are reduced, and this reduces the auditor's fee and the company's audit costs. In other words, auditing as a form of external corporate governance may replace effective internal corporate governance. In the second argument, it is assumed that in order to show a high level of corporate governance structure and reduce information asymmetry, managers use large and higher quality auditing firms, which may increase the audit fee. In the upcoming research, according to the systematic elimination method regarding sample selection and disclosure of companies regarding audit costs during the years 1387 to the end of 1391, 96 companies were examined in the form of 480 observations. The result of the model test shows that, at the significance level of the independent variable; Corporate governance (institutional ownership and independence of the board of directors) has a relationship with audit cost at the confidence level of 0.95. Therefore, the first and third research hypotheses are accepted. According to the obtained results, as the percentage of major and professional shareholders who have invested in the company increases, the audit costs will decrease. Also, as the percentage of independence of the board members increases (the number of non-compulsory board members is more), the audit costs will increase.

Independent auditing helps the usefulness of this process and the efficiency of capital markets by improving the reliability and increasing the credibility of the financial reporting process. The quality of the audit depends on several factors, especially the independence of the auditor. Therefore, reducing the auditor's independence has a direct effect on the quality of the audit process and his opinion. For this reason, professional associations pay serious attention to threats to auditor independence. They have considered two dimensions for independence. The apparent dimension, which is called apparent independence, relies on avoiding situations that make a rational person who is aware of all the conditions and situations doubt the neutrality of the audit. The inner, spiritual or intellectual dimension that depends on the auditor himself and cannot be measured or observed directly (Shariatpanahi and Nahandi, 2014, 77). Companies that apply for audits pursue different goals. Goals such as having an audit report for participation in auctions and tenders, goals for submitting to the Tax Administration, presenting a report to the general meeting of shareholders, and so on. These are the goals that the applicants are looking for. It is natural that these applicants seek to pay the minimum fee to do this according to the goals, and auditors, taking into account the workload and professional considerations, are looking to perform work with different quality and different types of reports. In other words, wanting a higher quality audit and receiving a more favorable report requires paying more and paying a higher audit fee, as well as a better quality audit to the accounting system and internal controls and Better documentation is needed. Therefore, in order to create confidence in managers, shareholders, and other stakeholders of the company, firstly, a good accounting system is needed, and secondly, a good audit is needed. The economy of many countries is under the control of large joint-stock companies that have provided the capital they need from millions of investors.Investors who have provided their savings to joint-stock companies ensure the correct and effective use of their invested funds according to the annual or quarterly financial statements published by the companies. The information reflected in the financial statements is useful and effective for users when it has the necessary qualitative features. One of the qualitative characteristics of financial information is reliability. Financial information is reliable and reliable when the financial effects of transactions and other financial events are measured in an impartial way and the results of the measurements are valid and reconfirmable. Users of financial statements can rely on the financial information reflected in the financial statements when an independent, competent and impartial person has provided a professional opinion on the validity of this information. In the current socio-economic systems, the task of commenting on financial statements has been assigned to independent auditors, and the activities of independent auditors are mostly carried out in the form of auditing institutions. (Accounting Standards, 2013, preface)

For many years in the past, economists assumed that all groups related to a joint-stock company work for a common goal; But in the last thirty years, economists have raised many cases of conflicts of interest between groups and how companies deal with such conflicts. In general, these cases are expressed under the title of "corporate governance" in accounting. According to the sensitive definition of Yaganeh and Baghomian: "Corporate governance is the rules and regulations, structures, processes, cultures and systems that achieve the goals of accountability, transparency, justice and respect for the rights of stakeholders". The emphasis of the initial foundations of corporate governance was mostly on the issue of corporate strategy and shareholders' rights, and later, with newer views, it tended to pay serious attention to the rights of all stakeholders and the community. The collapse of large companies such as Enron and WorldCom in the United States has drawn everyone's attention to the outstanding role of corporate governance and serious attention to the aforementioned principles of preventing such collapses.

In corporate governance, the goal is to have an effective and efficient board of directors, and achieving this goal requires evaluating the characteristics of the board of directors (especially desirable). In this case, the question is whether the different characteristics of the board of directors of companies can be effective in determining the fees of independent auditors? That is, if features such as the number of board members, the non-executive ratio of board members, the representation of board members from the public or private sector, the existence of doctoral degrees among board members, the existence of financial or accounting degrees among board members, changes in board members and changes in auditors can affect the audit fees and fees of independent auditors? By obtaining the answers to these questions, in order to improve the performance of the company, more appropriate measures can be taken and the shareholders can be guided to choose a more favorable board of directors. They use various factors for the pricing of auditing services, and many researches have been done in relation to the identification and evaluation of these factors. The factors considered in most studies include risk factors, volume and complexity of the unit's operation. One of the important factors in determining audit risk is the structure of corporate governance, which should be taken into account. Of course, it is not yet known whether corporate governance has an effect on audit fees or not, and if so, how it affects audit fees. There are at least two arguments about the relationship between corporate governance and auditors' fees. In the first argument, it is assumed that the internal structure of corporate governance of companies is complete. As a result, agency costs and risk of audit institutions are reduced, and this reduces the auditor's fee and the company's audit costs. In other words, auditing as a form of external corporate governance may replace effective internal corporate governance. In the second argument, it is assumed that managers use large and higher-quality audit firms to show a high level of corporate governance structure and reduce information asymmetry, which may increase audit fees. So far, empirical research has not provided an answer about which argument works better. In this research, the effect of corporate governance structure on audit costs is investigated.