Resumo:
Propsito do Trabalho:
This article investigates the relationship between auditors fees and audit quality in Brazil. This is relevant, since other studies have shown that the total remuneration paid to the independent auditors is associated with firms performance (Hay et al., 2006; Stanley, 2011). Researchers such as Kinney & Libby (2002) and Eshleman & Guo, (2013) have also examined the effects that audit fees have on the quality of the services rendered.
More specifically, we empirically examine the relationship between audit fees and the quality of the audit services rendered to the 300 largest firms listed on the BM&FBovespa in the period between 2009 and 2012.The fees paid for audit services can be used to measure the quality of the services provided by audit firms (Hallak & Silva, 2012). One of the ways to measure audit quality is permissiveness of the auditor with respect to earnings management. In this context, our research question is: Does the size of the audit fees influence auditing quality? This theme is still an open one in the Brazilian literature.The theme is of particular interest due to the particularities of the Brazilian institutional setting in relation to that in the United States, with the main difference being the weaker monitoring of audit quality in Brazil.
Base da plataforma terica:
The first studies in Brazil covering audit fees date to the 1980s (Hallak & Silva; 2012). Among the pertinent aspects of auditing is obviously the independence of the audit firms. Without independence, the probability of biased findings will obviously be higher (Braunbeck; 2010). For example, audit firms that also render nonaudit consulting services to their clients might be more willing to overlook accounting shortcomings, for fear of losing the additional consulting fees. Also, the audit firm tenure can affect the quality of the service, as auditors become more personally involved with managers and less likely to be critical of poor accounting practices. Both these potential problems have been addressed by regulators in most countries in recent years, by establishing rules on separation of auditing from consulting and mandatory auditor rotation. In short, audit fees can be used as a metric of the quality of the service (Hallak &Silva; 2012).However, higher fees do not necessarily mean stronger scrutiny from the auditor, and hence better audit quality. While some studies have indicated that higher fees translate into stronger commitment and more competent services and that on the other side of the coin, lower fees mean poorer quality, other researchers have argued that higher fees can cause the auditor to lose independence, resulting in more biased audit findings (Esheleman & Guo, 2013).Evidence in this respect was found by Kinney & Libby (2002), indicating that higher (abnormal) audit fees can be a sign of illicit acts by the company and inflated future earnings.Asthana & Boone (2012) employed a model to shed light on the fee-quality relationship depending on the signal sent by audit fees. In turn, Gupta, Krishnan & Yu (2012) analyzed whether auditors tolerate earnings management when audit fees are low, to examine the relation between abnormally low audit fees and fraudulent financial statements. Finally, Choi et al. (2010) considered the total value of discretionary accruals to be a proxy of the effectiveness of auditing services.We used the models of Gupta, Krishnan & Yu (2012), adapted to Brazilian conditions, with earnings management serving as a proxy for audit quality, to investigate the relationship between audit fees and audit quality. More specifically, we tested the hypothesis that abnormal audit fees create a setting that is more propitious for earnings management.
Mtodo de investigao:
The aim of this study is to investigate whether the compensation of independent auditors influences the quality of their services, by applying quantitative statistical techniques to the data gathered and calculating simple statistics such as percentages, means and standard deviations and applying them in correlation and regression analysis (Richardson, 2010). This study is descriptive in nature, as defined by Barros and Lehfeld (2000, p. 70), seeking to discover the frequency with which a phenomenon occurs, its characteristics, causes, relations and connections with other phenomena. More specifically, our aim is to discover and classify the relationship and causality between variables that measure phenomena. The data were obtained from the site of the Brazilian Securities Commission (CVM) and the Economatica database. The initial sample consisted of 566 firms listed on the BM&FBovespa in the period between 2009 and 2012 for which it was possible to identify the amount paid to the independent auditors. But we observed that many of them did not have a proper profile for inclusion in the study. Therefore, we narrowed the sample down to the 300 largest of these firms, as measured by year-end market value, for a total of 1,200 observations.
The data are secondary. Those related to auditors were gathered from the CVM site while the accounting data were obtained from the Economatica database. In the former case, our interest is the amount of audit fees. This information is contained in Section 2 (Independent Auditors) of the Reference Form (Formulario de Referencia, or FR) that all listed companies must file annually with the CVM.Based on the theoretical framework, we formulated the models and analyzed the corresponding regressions by using the Eviews econometric software, with application of the control variables identified. These models are those used by Gupta, Krishnan & Yu (2012), adjusted to the Brazilian market reality.
Resultados, concluses e suas implicaes:
To respond to the research question we used a sample of 300 firms listed on the BM&FBovespa, in the period from 2009 to 2012, for which it was possible to identify the amount paid to the auditors, using data gathered from the Economatica database and the website of the Brazilian Securities Commission (CVM).We analyzed the regressions with the aim of confirming or refuting the hypothesis that audit firms that charge less for their service tend to be more relaxed regarding earnings management by their client companies. The results confirm this hypothesis.The main contribution of this article is the possibility of stating that abnormal audit fees are related to abnormal discretionary accruals in the Brazilian capital market, or put another way, more aggressive earnings management occurs predominantly among firms that pay less than expected for audit services. This study evidences the perception of risk by the audit firms and how this is reflected in the abnormal fees harged.
MAIN FINDINGS: Confirmation of the expected positive relation between abnormal audit fees and positive discretionary accruals; Confirmation of the expected positive relation between nonaudit fees and positive discretionary accruals; Confirmation of the expected positive relation between the variable BIG4 and the amount paid to the auditor; Confirmation of the expected negative relation between the cash flow of the audited company and earnings management.The results of this study have implications for regulators, such as the CVM, whose mission is to protect investors and facilitate capitalization of companies in Brazil. The results also have implications for the members of the audit committee and senior management in general in their negotiation of audit fees. Although from managers standpoint it may be tempting to contract an auditor willing to accept a low fee, they must realize that audit firms have a cost structure, and abnormally low fees can mean the auditors will cut corners in performing their services, negatively impacting the audit quality and leading to an analysis of the financial statements that is more permissive of earnings management.Likewise, the results of this study are relevant to financial analysts in their judgment of the quality of earnings for the purpose of making investment recommendations. Companies that pay lower than expected audit fees might not be receiving the proper care to prevent risks of poor quality of the earnings reported.The main limitation of this study is the concentration only on large listed companies, so future studies could broaden the universe to include unlisted firms and/or smaller companies. Future studies could also focus on types of earnings management, such as to reduce the variability of earnings (income smoothing) or make the results look worse than they really are so as to increase the chances of showing strong recovery in subsequent periods (taking a bath).
Referncias bibliogrficas:
Aathana, S.C., & Boone J. (2012). Abnormal Audit Fee and Audit Quality. Auditing: A Journal of Practice & Theory 31 (3): 1-22.
Barros, A. J. O.; & Lehfeld, N A S. Fundamentos de Metodologia Cientifica. 2nd ed. Sao Paulo: Makron Books, 2000.
Choi, J.-H., Kim C. F., & Zang, Y (2010). "Audit Office Size, Audit Quality, and Audit Pricing", Auditing: A Journal of Practice & Theory, 29 (1): 73-97.
Eshleman, D., & Guo, P. (2013) Abnormal audit fees and audit quality: New evidence.( Available at http://aaahq.org/AM2013/abstract.cfm?submissionID=688.
Gupta, P. P., Krishnan, G V., & Yu, W. (2012), Do Auditors Allow Earnings Management When Audit Fees are Low? Available at SSRN: http://ssrn.com/abstract=1836829.
Hallak, R; T. P., & Silva, A. L. (2012) Determinantes das despesas com servicos de auditoria e consultoria prestados pelo auditor independente no Brasil. Rev. Contababilidade e Financas. Dec. 2012, vol.23, no. 60, pp. 223-231. ISSN 1519-7077.
Hay, D. C., Knechel W.C., & Wong N., (2006). "Audit Fees: A Meta-analysis of the Effect of Supply and Demand Attributes", Contemporary Accounting Research, 23 (1): 141-191.
Kinney, W. R., & Libby. R. (2002). Discussion of the relation between auditors' fees for nonaudit services and earnings management. Accounting Review 77: 107-114.
Richardson, R. J (2010). Pesquisa social: metodos e tecnicas. 3rd ed. 11. Reimpr. - Sao Paulo: Atlas.
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