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Organization capital and audit fees around the world
Author(s) -
Habib Ahsan,
Hasan Mostafa Monzur,
Sun Xuan Sean
Publication year - 2020
Publication title -
international journal of auditing
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.583
H-Index - 21
eISSN - 1099-1123
pISSN - 1090-6738
DOI - 10.1111/ijau.12197
Subject(s) - business , audit , accounting , joint audit , agency (philosophy) , capital market , audit risk , external auditor , agency cost , finance , internal audit , corporate governance , philosophy , epistemology , shareholder
We examine whether auditors consider organization capital in audit pricing decisions. Utilizing an international sample from 40 countries spanning the period 2001–2017, we find that firms with high levels of organization capital pay high audit fees: a finding that is consistent with both the risk‐ and the agency‐based arguments for audit pricing. Additionally, our results indicate that the positive relationship between organization capital and audit fees is reinforced in firms with pronounced business risks and agency problems, whereas it is relatively weak in countries with protective employment legislation. Our study contributes to the voluminous literature on the determinants of audit fees by showing that auditors price the risks related to clients' intangible assets, especially those embodied in a firm's key talents. Our study also contributes to the scarce literature on the effects of organization capital in international markets.