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Optimistic tone and audit fees: some Australian evidence
journal contribution
posted on 2019-07-01, 00:00 authored by Vincent Bicudo de CastroVincent Bicudo de Castro, Ferdinand GulFerdinand Gul, Mohammad MuttakinMohammad Muttakin, Dessalegn MihretWe 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.
History
Journal
International journal of auditingVolume
23Issue
2Pagination
352 - 364Publisher
John Wiley & SonsLocation
Chichester, Eng.Publisher DOI
ISSN
1090-6738eISSN
1099-1123Language
engPublication classification
C1 Refereed article in a scholarly journal; C Journal articleCopyright notice
2019, John Wiley & Sons LtdUsage metrics
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