The relation between audit fee cuts during the economic crisis and audit quality

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Abstract:

The economic crisis presents a unique opportunity to study how auditors respond to an exogenous shock to the clients' operating environment. Also, due to the economic crisis, some of auditors are under pressure from clients to cut audit fees during the crisis. In Iran, due to inflationary conditions, this issue manifests itself mainly in the form of an increase in auditing fees to a lesser extent than the general increase in prices. There is a concern that reduction of audit fees or increase below the inflation rate, could result in lower audit effort, and more importantly, impair audit quality. In this study, using multiple criteria for audit quality (Going Concern and Audit Adjustments), this issue was investigated. Overall, the research findings show that although the economic crisis following the currency shock in 2012 has affected the audit quality, but there is no significant difference in audit quality, between client firms that received a fee cut during the economic crisis and other client firms. Our findings contribute to understanding the role of auditors during the economic crisis.

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Journal title

volume 21  issue 84

pages  470- 493

publication date 2021-12

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