Investigating the relationship between agency cost indicators and audit fees and providing a model for estimating independent audit fees in Iran

Abstract:

In order to provide a suitable model for estimating audit fees, this research has taken into account the agency theory aspect. According to the agency theory, managers and employers are in conflict of interest, as a result, people have to bear agency costs in order to align the interests of others with their own or to minimize the effects of conflict of interest. The manager who is at the center of this conflict of interest has many powers and the need to monitor the manager's performance raises the professional judgment of the independent auditor. Agency fees can have significant effects on audit service fees by increasing the risk, size and complexity of the unit's operation, so it is necessary to provide a model for determining the audit fee that takes into account the agency fee index. This research tries to consider the effect of two categories of general factors and agency cost indicators that are effective on the risk, volume and complexity of the unit's operation under consideration as independent research variables and examine its effect on the dependent variable which is the audit fee. In this research, the general factors affecting the audit fee are: the average logarithm of total assets and operating income, the ratio of profit before interest and taxes to assets, the ratio of total accounts receivable to assets and the end of the financial year, and the representative indicators that affect the fee are: the ratio of total liabilities to assets, the ratio of non-commissioned members of the board of directors to all members, the ratio of the share of government institutions, the ratio of the share of the first major shareholder. The main hypothesis of the research is to examine the relationship between indicators agency fee and audit fee, and multivariable regression was used to investigate this relationship. The information needed to test the hypotheses was collected from the companies admitted to the Tehran Stock Exchange for the years 1985-1987. The results of the research show that there is a significant relationship between the agency cost indicators and the audit fee.

Key words:

       Independent audit, audit of financial statements, agency fees

1- Introduction:

The most important step in any economic action is to make appropriate decisions according to reliable and fair financial information, and therefore audit is a part of the financial information reporting process, which by evaluating this process can give credibility to these reports and respond to the needs of users for reliability and fairness of information so that they can make decisions with confidence.

Ensuring the continuity of providing these credit-giving services is ensuring economic benefits for the professional service providers, i.e. auditors. Therefore, it is important to study the process related to the factors affecting the audit fee in order to provide a suitable model for determining the audit fee.

In this chapter, the generalities of the research are stated, first the research problem and its importance and necessity are mentioned, then its goals and hypotheses are mentioned. After that, the scope and method of the research are explained, and finally the operational definition of the word Habian is given.

2- Explanation of the problem

Audit is a tool for validating financial statements and fulfilling the concept of accountability. In today's society, the role of auditing is performed through a professional mechanism, and it is a sufficient and necessary condition in professional activities to provide public interests (Rajabi, 2014, 69) 1 Public interests, especially in cases that conflict This fact does not mean that the economic interests of the professional auditor should not be taken into account. Ensuring the individual and organizational economic interests of the auditor is a necessary condition for his survival in this profession and fulfilling the audit role, of course, it should be noted that this is not a sufficient condition, but public interests must also be provided. It is earned by the auditor and the audit firm.Auditors use many factors to estimate audit fees, which are often descriptive, and many researches have been conducted in this regard, during which many of these factors have been identified and evaluated.

Descriptive factors that have been considered in most studies include three factors: risk, volume, and complexity of the unit under consideration (Simonik, 1996, 172) [1] .

(Dufando et al., 2000, 51) [2] have said: these models have a high descriptive power and have been strengthened through examples, countries and time periods. The researches conducted in this field in different countries have tried to examine the factors affecting the pricing of audit services and audit fees and provide different variables as factors influencing audit fees. The following examples Some of these researches are driving them.

(Jul, 1999, 17) [3] has investigated the effect of various factors on the audit fee. In this research, the variables, total assets, ratio of total long-term debt to total assets, ratio of current assets to current liabilities, current ratio, end of financial year, ratio of investment return, percentage delay of audit report and number of subsidiaries of the investigated unit have been used. .

Manan Williams [4] also examined the effect of independent variables such as the total assets, the number of subsidiaries, the ratio of total balances and accounts receivable to total assets, the ratio of total liabilities to total assets, and the ratio of the market share of the audit firm of the receivables unit on the fees for auditing services. The representatives are in charge of the affairs of the companies, therefore, in such a situation, the managers are looking for the development of the unit under their supervision, but the development of the company requires the collection of various resources (labor, capital, credit, etc.), which with the increase of resources at the management's disposal, the volume of interested people in relation to the company also increases. In such a situation, not only conflict of interest does not occur, but this conflict of interest can be seen on a significant scale. (conflict of interests of managers and investors, conflict of interests of managers and brokers, etc.) and the result of such a conflict is to bear agency costs on the part of the interested parties, in order to align the interests of others with their own or to minimize the effects of the conflict of interest.

At the center of this conflict of interest, the company tries to reduce agency costs by providing financial information, but because the information provided by the management cannot be a suitable measure to monitor its performance for the benefit of others, this supervisory need raises the expert judgment of an independent person called an auditor. (Ahmadi, 1381, 82) 1. In order to use audit services, the manager must pay him an amount as an audit service fee. This amount is determined by the auditor according to his assessment of the volume and risk of the audit work. In order to provide an expert opinion, the auditor examines the management's claims in the form of financial statements. These claims are proven to the auditor and provide reasonable assurances to express an opinion so that he can evaluate the documentation of such claims.

If the number of subjective and estimated items by the management (which is one of his powers) increases, the audit process becomes more complicated, its risk and volume also increase, and the auditor will set a higher fee for the audit. Another issue that the auditor always considers in estimating the audit fee is to check whether the management uses its own powers to smooth the profit or not? , 206, 1998) 22.

The greater the authority of the managers, the less possibility of controlling their performance and subsequently the agency costs will increase. As a result, the auditor must plan and implement a more complex, risky process and a higher volume with a higher fee to perform the audit work.