Versatility of Digits Distribution of Financial Statements with Benford’s Law and Its Impact on Audit Fee

Document Type : Research Paper

Authors

1 Assistant Professor of Accounting, Shahid Beheshti University, Tehran, Iran.

2 M.A. of Accounting, Shahid Beheshti University, Tehran, Iran.

10.22103/jak.2020.13192.2865

Abstract

Objective: Today, in the audit profession, identifying the factors affecting audit fee is of particular importance in terms of its impact on the quality of auditing and on the competitiveness of audit firms. The aim of this study is to examine the versatility of digits distribution of financial statements with Benford’s law and its effect on audit fee.
Method: To measure the variance of distribution of financial statement digits with Benford law, the scoring practice by Kolmogorov-Smirnov method was used. In this study, the data of 101 companies lidted in the Tehran Stock Exchange, TSE, in the period 2007 to 2017 were collected from Rahavard Novin software, financial statements and the official website of TSE. The research hypotheses were tested by multivariate regression model.
Results: Findings showed that the score distribution of the initial digits of financial statements has a positive but non-significant effect on audit fee. Also, for the distribution of last digits of financial statements, a negative but non-significant effect on the audit fee was observred. In other words, the deviation from Benford distribution for the first and last digits of financial statements lacks positive and significant effect on audit Fee.
Conclusion: Based on Banford law, auditors can limit the distribution of their investigation to the transactions that are suspicious and more likely to be fraudulent. Therefore, auditors can be more accurate in their estimates of the importance of distortion in audit program and audit pricing.

Keywords

References

اسدی، غلامحسین؛ اثنی‌عشری، حمیده؛ رضایی نماور، حسین؛ محمد علیخانی، طیبه. (1397). فنون تحلیل داده‌های مالی در بزه‌یابی. تهران، انتشارات انجمن حسابرسان داخلی ایران.
بذرافشان، سعید. (1397). بررسی اثر دورۀ جستجو برای حسابرس جایگزین بر حق‌الزحمۀ حسابرسی نخستین. دانش حسابداری، 9(1)، 194-171.
تلخابی، فاطمه، نیکومرام، هاشم؛ وکیلی فرد، حمیدرضا؛ رویایی، رمضانعلی. (1396). بررسی چسبندگی حق‌الزحمه حسابرسی و تاثیر ریسک مالیاتی بر آن. دانش حسابداری، 8(3)، 201-167.
تنانی، محسن؛ علوی، سیدمحمد. (1392). بررسی مقایسه‌ای عوامل مؤثر بر حق‌الزحمۀ حسابرسی صورت‌های مالی از منظر حسابرسان مستقل و مدیران اجرایی. دانشحسابرسی، 13(51)، 88-69.
حجازی، رضوان؛ قیطاسی، روح‌اله؛ قیطاسی، طالب. (1391). اثر اقلام تعهدی و جریان‌های نقدی بر قیمت گذاری خدمات حسابرسی. تحقیقات حسابداری و حسابرسی، 4(13)، 62-77.
رازقی، سیده غزاله؛ امیرحسینی، زهرا. (1395). بررسی رابطه بین بهبود نگهداشت وجه نقد و ارزیابی عملکرد ارزش افزوده اقتصادی. راهبرد مدیریت مالی، 4(1)، 123-139.
سجادی، سیدحسین؛ زارعی، رضا. (1386). تأثیر ویژگی‌های موسسۀ حسابرسی و صاحب‌کار بر حق‌الزحمۀ حسابرسی. بررسی‌های حسابداری و حسابرسی، 14(3)، 67-90.
قدیم‌پور، جواد؛ دستگیر، محسن. (1395). بررسی تأثیر عوامل ریسک دادخواهی حسابرسان بر حق‌الزحمۀ حسابرسی. پژوهش‌های حسابداری مالی، 8(4)، 37-54.
مرادی، محمد؛ محقق، فاطمه. (1396). رقابت بازار محصول و حق‌الزحمۀ حسابرسی: با تأکید بر نقش حاکمیت شرکتی. پژوهش‌های تجربی حسابداری، 7، 52-33.
منصوری، فردین؛ سعیدی گراغانی، مسلم؛ اسدی دوبانی، ناهید. (1396). بررسی تاثیر تجدید ارزیابی دارایی‌ها بر حق‌الزحمه حسابرسی. دانش حسابداری، 8(4)، 141-159.
نیکبخت، محمدرضا؛ تنانی، محسن. (1389). آزمون عوامل مؤثر بر حق‌الزحمه حسابرسی صورت‌های مالی. پژوش‌هایحسابداریمالی، 2(2)، 132-111.
References
Alali, F.A., Romero, S. (2013). Benford's law: Analyzing a decade of financial data. Journal of Emerging Technologies in Accounting, 10(1), 1-39.
Amiram, D., Bozanic, Z., Rouen, E. (2015). Financial statement errors: Evidence from the distributional properties of financial statement numbers. Review of Accounting Studies, 20(4), 1540-1593.
Aris, N.A., Othman, R., Bukhori, M.A.M., Arif, S.M.M., Malek, M.A.A. (2017). Detecting accounting anomalies using benford's law: evidence from the malaysian public sector. Management & Accounting Review, 16(2), 73-100.
Assadi, Gh.H., Esnaashari, H., Rezaei, H,. Mohammad Alikhani, T. (2018). Techniques for forensic accounting investigation using of excel and access. iranian association of internal audit. Tehran, Iran [In Persian].
Bader, A.A., Saleh, M.M.A. (2017). Evidence on the extent of cosmetic earnings and revenues management by jordanian companies. International Journal of Economics and Financial Issues, 7(3), 20-30.
Bazrafshan, S. (2018). Effects of search period for successor auditor on initial audit fees and type of successor auditor. Journal of Accounting Knowledge, 9(1), 171-194 [In Persian].
Bedard, J. C., Graham L. E. (2002). The effects of decision aid orientation on risk factor identification and audit test planning. Auditing, 21(2), 39-56.
Bell, T.B., Peecher, M.E., Solomon, I. (2005). The 21st century public company audit: Conceptual elements of KPMG’s global audit methodology. "KPMG, LLP.
Blay, A., Kizirian, T., Dwight, S. (2008). Evidential effort and risk assessment in auditing. Journal of Business & Economics Research, 6(9), 39-52.
Castro, W.B.D.L., Peleias, I.R., Silva, G.P.D. (2015). Determinants of audit fees: A study in the companies listed on the BM&FBOVESPA, Brazil. Revista Contabilidade & Finanças, 26(69), 261-273.
Chakrabarty, B., Duellman, S., Hyman, M. (2018). A new approach to estimating the relation between audit fees and financial misconduct. Available at SSRN: https://ssrn.com/abstract=2685175.
Dutta, S.K., Harrison, K., Srivastava, R.P. (1998). The audit risk model under the risk of fraud. Applications of Fuzzy Sets & The Theory of Evidence to Accounting II, 7, 221-244.
Elliott, J.A., Ghosh, A., Peltier, E. (2013). Pricing of risky initial audit engagements. Auditing: A Journal of Practice & Theory, 32(4), 25-43.
Feldmann, D.A., Read, W.J., Abdolmohammadi, M.J. (2009). Financial restatements, audit fees, and the moderating effect of CFO turnover. Auditing: A Journal of Practice & Theory, 28(1), 205-223.
Geyer, D., Drechsler, C. (2014). Detecting cosmetic debt management using Benford's Law. Journal of Applied Business Research, 30(5), 1485-1492.
Ghadimpoor, J., Dastghir, M. (2016). Investigating the effects of litigation risk factors on audit fee. Journal of Financial Accounting Research, 8(4), 37-54 [In Persian].
Gist, W. (1992). Explaining variability in external audit fees. Accounting & Business Research, 23(89), 74-79.
Houston, R.W., Peters, M.F. Pratt, J.H. (1999). The audit risk model, business risk and audit planning decisions. The Accounting Review, 74, 281-298.
Heninger, W. (2001). The association between auditor litigation and abnormal accruals. The Accounting Review, 76(1), 22-53.
Hejazi, R., Ghetazi, R., Ghetazi, T. (2012). The effects of accruals and cash flows on auditing services pricing. Accounting Research, 4(13), 62-77 [In Persian].
Kinney Jr, W.R., Palmrose, Z.V., Scholz, S. (2004). Auditor independence, non-audit services, and restatements: Was the US government right? Journal of Accounting Research, 42(3), 561-588.
Mansouri, F., Saeidi Goraghani, M., Asadi Dobani, N. (2018). The effect of revaluation of assets on audit fees. Journal of Accounting Knowledge, 8(4), 141-159 [In Persian].
Moradi, M., Mohaghegh, F. (2018). Corporate governance and the relation between product market competition and audit fees. Empirical Research in Accounting, 7(2), 33-52 [In Persian].
Nikbakht, M., Tanani, M. (2010). Test of factors influencing financial audit fees. Journal of Financial Accounting Research, 2(2), 111-132 [In Persian].
Nikkinen, J., Sahlström, P. (2005). Risk in audit pricing: The role of firm-specific dimensions of risk. Advances in International Accounting, 18, 141-151.
Nugroho, D.A., Fuad, F. (2017). The influence of audit committee characteristics, executive compensation, and audit complexity towards corporate audit fee. Diponegoro Journal of Accounting, 6(4), 1-11.
Ozarı, C., Ocak, M. (2008). Detection of earnings management by applying benford's law in selected accounts: Evidence from quarterly financial statements of turkish public companies. Journal of Business Ethics, 78(1/2), 65.
Razeghi, G., Amirhosseini, Z. (2016). The investigation of the relationship between the value of cash holding and EVA performance evaluation of companies listed in Tehran Stock Exchange. Financial Management Strategy, 4(1), 123-139 [In Persian].
Sajjadi, S., Zarei, R. (2008). Impact of the audit characteristics on audit fees. Journal of Accounting and Auditing Review, 14(3), 67-90 [In Persian].
Shette, R., Kuntluru, S. (2014). Rounding-up in reported income numbers: Evidence from Indian companies. Review of Accounting and Finance, 13(2), 156-170.
Simunic, D.A., Stein, M.T. (1987). The impact of litigation risk on audit pricing: A review of the economics and the evidence. Auditing: A Journal of Practice & Theory, 15, 120–134.
Talkhabi, F., Nikoumaram, H., Vakilifard, H., Royaee, R. (2017). Investigate the audit fee stickiness and the impact of tax risk on it. Journal of Accounting Knowledge, 8(3), 167-201 [In Persian].
Tanani, M., Alavi, S.M. (2014). A comparative study of factors affecting financial audit of financial statements from the standpoint of independent auditors and executive managers. Journal of Audit Science, 13(51), 107-127 [In Persian].
Visvanathan, G. (2017). Intangible assets on the balance sheet and audit fees. International Journal of Disclosure and Governance, 14(3), 241-250.
Wu, X., Wang, X., Yang, Y. (2018). The puzzling association between inventory and auditor pricing in China. China Journal of Accounting Research, 11(4), 351-366.
Yin, H. (2015). Financial statement conformance to Benford's law and audit fees. Master’s Thesis, Macquarie University, Australia, Sydney.
Zaman, M., Hudaib, M., Haniffa, R. (2011). Corporate governance quality, audit fees and non-audit services fees. Journal of Business Finance & Accounting, 38(1,2), 165-197.
Zhang, J.H. (2018). Accounting comparability, audit effort, and audit outcomes. Contemporary Accounting Research, 35(1), 245-276.

Files

History

  • Receive Date: 08 December 2018
  • Revise Date: 27 April 2019
  • Accept Date: 21 September 2019

Share

How to cite

Statistics