Optimistic tone and audit fees: Some Australian evidence

Vincent Bicudo de Castro; Ferdinand A. Gul; Mohammad Badrul Muttakin; Dessalegn Getie Mihret

doi:10.1111/ijau.12165

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Optimistic tone and audit fees: Some Australian evidence

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Optimistic tone and audit fees: Some Australian evidence

Vincent Bicudo de Castro, Ferdinand A. Gul, Mohammad Badrul Muttakin and Dessalegn Getie Mihret

International Journal of Auditing, Vol.23(2), pp.352-364

2019

DOI: https://doi.org/10.1111/ijau.12165

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Abstract

audit fees

audit pricing

audit risk

optimistic tone

We examine whether the tone of corporate annual reports is associated with audit pricing decisions. A unique dataset drawn from annual reports of nonfinancial firms listed on the Australian Stock Exchange for the period from 2002 to 2014 is generated using textual analysis. We find that annual reports that convey optimistic tone are associated with lower audit fees, suggesting that annual report tone reflects factors that auditors consider in assessing audit risk. Consistent with the inverse association between tone and audit fees, results of additional analysis show that annual report tone is positively associated with earnings quality. Our results hold after controlling for firm characteristics that influence audit pricing decisions and remain robust to alternative variable measurement and test of endogeneity. Overall, the findings suggest that auditors could enhance their audit risk assessment practices by systematically considering linguistic attributes of qualitative corporate disclosures.

Details

Title: Optimistic tone and audit fees: Some Australian evidence
Authors: Vincent Bicudo de Castro (Author) - Deakin University
Ferdinand A. Gul (Author) - Deakin University
Mohammad Badrul Muttakin (Corresponding Author) - Deakin University
Dessalegn Getie Mihret (Author) - Deakin Univ, Fac Business & Law, Dept Accounting, 221 Burwood Highway, Burwood, Vic 3125, Australia
Publication details: International Journal of Auditing, Vol.23(2), pp.352-364
Publisher: Wiley-Blackwell Publishing Ltd.
DOI: 10.1111/ijau.12165
ISSN: 1099-1123
Organisation Unit: University of the Sunshine Coast, Queensland; School of Business and Creative Industries
Language: English
Record Identifier: 99679191902621
Output Type: Journal article

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