The Influence of the Client`s Financial Performance to the Audit Fees
Author:
Lecturer Corina-Ionela CHERSAN, Ph. D.; Univ. Prof. Marilena MIRONIUC, Ph. D.; Ioan-Bogdan ROBU, Ph. D. Student
JEL:
C58, M41, M42
DOI:
Keywords:
financial performance, transparent reporting, audit fees, audit-client, financial ratios
Abstract:
The current economic and financial crisis highlight the fundamental role of auditors in ensuring faithful view of the financial statements of quoted companies to support investor confidence and their decisions. Therefore, auditors should apply audit procedures to obtain audit evidence in order to support their opinion from the audit report. The application of audit procedures lead to appearance of audit costs for auditors, transposed in audit fees charged to client companies. According to professional standards, the auditor should obtain sufficient and appropriate audit evidence. Auditor would apply additional audit procedures to the clients with a high risk, compared with those that have a low risk, with an impact on audit fees. This risk identified by the auditor may come from a bad financial situation, litigation or a lack of transparency in financial reporting. The study aims to analyze the influence of the client`s financial performance, expressed by a number of financial ratios, to the level of audit fees paid to the Big Four audit firms. Analysis was performed on a sample of 141 firms with and without financial performance, quoted on New York Stock Exchange, in 2010. Study results showed that clients with high financial performance and that are transparent in financial reporting pay audit fees smaller than clients without financial performance and that are non-transparent in financial reporting. To obtain the research results, the analysis was performed using SPSS 19.0 statistical software. \r\n\r\n\r\n