Professional Auditing Research

Professional Auditing Research

Unusual tone of managers and audit engagement: Emphasis on audit opinion and auditor size

Document Type : Original Article

Authors
Golamreza Nejadhajee 1
mahdi moradi 2
Azam pouryousof 3
1 M.S Student, Islamic Azad University, Tehran, Iran. Reza.nezhad44h@gmail.com
2 Professor of Accounting, College of Administrative and Economic Sciences, Ferdowsi University of Mashhad, Mashhad, Iran.
3 Assistant Professor , Faculty of management, Accounting and Economic, PNU, Tehran, Iran
10.22034/jpar.2025.2059111.1416
Abstract
The objective of the present study is to examine the impact of abnormal managerial tone on audit fees and audit delay, considering modified audit opinions and the size of the audit firm. Data from 154 companies over the years 2014 to 2023 were evaluated using regression analysis, considering fixed effects for year and industry. The findings indicate that abnormal tone has a positive impact on audit fees and audit delay. Additionally, the prior year's audit opinion strengthens the effect of abnormal tone on audit fees but does not significantly influence the relationship between abnormal tone and audit delay. The size of the audit firm does not significantly affect the relationship between abnormal tone and audit fees but does strengthen the impact of abnormal tone on audit delay. Abnormal managerial tone increases the likelihood of modified audit opinions, thereby influencing auditors' perception of the client company's operational risk, and audit costs increase with higher risk. Consequently, audit fees and delays increase. Additionally, larger audit firms, with their enhanced reputation, exert greater effort to ensure audit quality. Therefore, prior modified audit opinions and the size of the audit firm can moderate the relationship between abnormal tone and audit fees and delays. The present study demonstrates that non-quantitative signals such as biased tone can also increase audit costs and audit completion time. The findings support contract cost theory and audit risk theory. Furthermore, it expands the literature on financial reporting quality and auditors' responses, showing how auditors utilize their tools (e.g., audit opinions) to manage risks arising from managerial behavior. It also contributes to understanding the differences in audit quality between large and small audit firms.The research findings assist auditors in designing risk assessment procedures that account for managerial tone, warn managers about the negative consequences of biased reporting, and guide regulators in incorporating qualitative aspects of reporting into regulatory frameworks. Finally, the study provides a framework for future research to examine the impact of qualitative variables, such as tone, on audit decisions and proposes new metrics for assessing financial reporting risk.
Keywords
Abnormal tone
audit fees
audit delay
auditor size
audit opinion

Subjects

بزرگ اصل، موسی؛ مرفوع، محمد و ماهان‌نژاد، مهدی(1400). تأثیر لحن گزارشگری مالی بر حق‌الزحمه حسابرسی شرکت‌های پذیرفته‌شده در بورس اوراق بهادار تهران. مطالعات تجربی حسابداری مالی، 18(72)، 107-79.
پوریوسف، اعظم؛ نصیرزاده، فرزانه و ثقفی، مهدی(1402). تحریف‌های کشف شده حسابرسی و لحن گزارشگری مدیران: نقش میانجی کیفیت گزارشگری مالی. دانش حسابرسی. ۱۴۰۲; ۲۳ (۹۳) :۲۴۵-۲۷۳.
تیموریان، سید علی اکبر. مران جوری، مهدی. علی خانی، رضیه و رستمی، نعمت . (1403). خودشیفتگی شرکای حسابرسی و حق‌الزحمه حسابرسی: نقش دوره تصدی و تعدد کاری حسابرس. پژوهش‌های حسابرسی حرفه‌ای، 5(18)، 33-8.
رشیدی، محسن؛ صومی، مائده و کزازی گودرزی، میلاد (1403). واکنش‌های نامتقارن مؤلفه جهش حق‌الزحمه غیرعادی حسابرسی به تغییرات وضعیت اعتباری. بررسی‏‌های حسابداری و حسابرسی 31(3)، 492-518.
رمضان احمدی، محمد؛ واعظ، سید علی؛ آرمن، سید عزیز و درسه، سید صابر (1401). بررسی تأثیر سبک حسابرس بر رابطه بین خوانایی گزارشگری مالی و آگاهی‌بخشی قیمت سهام. بررسی‏‌های حسابداری و حسابرسی، 2(29):338-311.
شهسواری، معصومه؛ عباسزاده، محمدرضا و حصاری، حمزه (1401). لحن مورداستفاده در گزارش حسابرس و حق‌الزحمه حسابرسی با تأکید بر نقش تعدیلگری الزامات استاندارد حسابرسی شماره700. مطالعات تجربی حسابداری مالی، 19(76)، 161-131.
نیکبخت، محمدرضا؛ بزرگ اصل، موسی؛ آزادی، کیهان و تصدی کاری، محمدجواد (1399). مقایسه دیدگاه‌‏های مدیران سازمان و مؤسسات حسابرسی در تعیین عوامل مؤثر بر حق‌الزحمه حسابرسی با به کارگیری منطق فازی.. پژوهش‌های حسابرسی حرفه‌ای، 1(1):89-72.
نیکبخت، محمدرضا؛ بزرگ اصل، موسی و آزادی، کیهان (1395)، ارائه مدلی جامع برای قیمت­گذاری خدمات حسابرسی با استفاده از منطق فازی. دانش حسابداری مالی، شماره 3(10): 116-97.
نیکبخت، محمدرضا و تنانی، محسن (1389). آزمون عوامل مؤثر بر حق­الزحمه حسابرسی صورت­های­مالی. پژوهش­های حسابداری مالی، شماره 2(4):132-111.
مشایخ، شهناز . حکمت، هانیه و جمشیدی، پروانه. (1403). بررسی اثر خوانایی گزارش های مالی بر تاخیر گزارش حسابرسی، بندهای توضیحی و حق الزحمه حسابرسی. پژوهش‌های حسابرسی حرفه‌ای، 5(17): 57-36.
یاری، مهدی؛ محمدرضائی، فخرالدین؛ غلامی جمکرانی، رضا و فرجی، امید (1401). حق‌الزحمه حسابرسی: نقش آیین‌نامه تعیین حق‌الزحمه پایه خدمات حسابرسی. بررسی‏‌های حسابداری و حسابرسی،29(1): 146-172.
Allee, K. D. & DeAngelis, M. D. (2015). The structure of voluntary disclosure narratives: Evidence from tone dispersion. Journal of Accounting Research, 53 (2): 241-274. https://doi.org/10.1111/1475-679X.12072
Baginski, S.P., Demers, E., Kausar, E. & Yu, Y. J. (2018). Linguistic tone and the small trader. Accounting, Organizations and Society. https://doi.org/10.1016/j.aos.2018.03.005
Blanco, B., Coram, P. Dhole, S. & Kent. P. (2020). How do auditors respond to low annual report readability? Journal of Accounting and Public Policy, 40 (3): 106-139.
Bhattacharya, N., E. L. Black, T. E. Christensen, and R. D. Mergenthaler. 2007. Who trades on pro forma earnings information? The Accounting Review 82 (3): 581-619. https://doi.org/10.2308/accr.2007.82.3.581.
Bozorg Asl, M., Marfou, M. & Mahan Nejad, M. (2021). The impact of financial reporting tone on audit fees of companies listed on the Tehran Stock Exchange. Empirical Studies in Financial Accounting, 18 (72): 79-107. (in Persian)
Calderon, T. G. & Gao, L. (2020). Cybersecurity risks disclosure and implied audit risks: Evidence from audit fees. International Journal of Auditing, 25 (1): 1-16. https://doi.org/10.1111/ijau.12209
Clarkson, P. M., Ferguson, C. & Hall, J. (2003). Auditor conservatism and voluntary disclosure: Evidence from the year 2000 systems issue. Accounting and Finance, 43 (1): 21-40. https://doi.org/10.1111/1467-629X.00081
Costa, G. A., L. C. Oliveira, L. L. Rodrigues, and R. Craig. 2013. Factors associated with the publication of a CEO letter. Corporate Communications: An International Journal 18 (4): 432-450. https://doi.org/10.1108/CCIJ-07-2012-0045.
D’Augusta, C. & DeAngelis, M. D. (2020). Does accounting conservatism discipline qualitative disclosure? Evidence from tone management in the MD&A. Contemporary Accounting Research, 37 (4): 2287-2318. https://doi.org/10.1111/1911-3846.12598
Davis, A. K. & Tama-Sweet, I. (2012). Managers’ use of language across alternative disclosure outlets: Earnings press releases versus MD&A. Contemporary Accounting Research, 29 (3): 804-837. https://doi.org/10.1111/j.1911-3846.2011.01125.x
Davis, A. K., Piger, J. M. & Sedor, L. M. (2012). Beyond the numbers: Measuring the information content of earnings press release language. Contemporary Accounting Research, 29 (3): 845-868. https://doi.org/10.1111/j.1911-3846.2011.01130.x
Greiner, A., Patelli, L. & Pedrini, M. (2020). Characteristics of managerial tone priced by auditors: Evidence based on annual letters to shareholders of large US firms. A Journal of Practice and Theory, 39 (2): 139-161. https://doi.org/10.2308/AJPT-52594
Henry, E. (2008). Are investors influenced by how earnings press releases are written? Journal of Business Communication, 45 (4): 363–407.
Henry, E., & Leone, A. J. (2016). Measuring qualitative information in capital markets research: Comparison of alternative methodologies to measure disclosure tone. The Accounting Review, 91 (1): 153–178.
Hossain, M., Raghunandan, K. & Rama, D. V. (2020). Abnormal disclosure tone and going concern modified audit reports. Journal of Accounting and Public Policy, 39 (4): 106764. https://doi.org/10.1016/j.jaccpubpol.2020.106764
Huang, X., Teoh, S. H. & Zhang, Y. (2014). Tone management. The Accounting Review, 89 (3): 1083-1113. https://doi.org/10.2308/accr-50684
Lang, M. H. & Lundholm, R. J. (2000). Voluntary disclosure and equity offerings: Reducing information asymmetry or hyping the stock? Contemporary Accounting Research, 17 (4): 623-662. https://doi.org/10.1506/9N45-F0JX-AXVW-LBWJ
Li, F. (2010). The information content of forward-looking statements in corporate filings—A naïve Bayesian machine learning approach. Journal of Accounting Research, 48 (5): 1049-1102. https://doi.org/10.1111/j.1475-679X.2010.00382.x
Liu, P. & Nguyen, H. T. (2020). CEO characteristics and tone at the top inconsistency. Journal of Economics and Business. https://doi.org/10.1016/j.jeconbus.2019.105887
Lopatta, K., Gloger, M. A. & Jaeschke, R. (2017). Can language predict bankruptcy? The explanatory power of tone in 10-K filings. Accounting Perspectives, 16 (4): 315-343. https://doi.org/10.1111/1911-3838.12150.
Jegadeesh, N., and D. Wu. 2013. Word power: A new approach for content analysis. Journal of financial economics 110 (3): 712-729. https://doi.org/10.1016/j.jfineco.2013.08.018.
Nikbakht, M. R., Bozorg Asl, M., Azadi, K. & Tasaddoghi Kari, M. J. (2020). Comparing the perspectives of organization managers and audit firms on determining factors affecting audit fees using fuzzy logic. Professional Auditing Research, 1 (1): 72-89. (in Persian)
Nikbakht, M. R., Bozorg Asl, M. & Azadi, K. (2016). Providing a comprehensive model for pricing audit services using fuzzy logic. Financial Accounting Knowledge, 3 (10): 97-116. (in Persian)
Nikbakht, M. R. & Tanani, M. (2010). Testing the factors affecting audit fees of financial statements. Financial Accounting Research, 2 (4): 111-132. (in Persian)
Mayew, W. J., Sethuraman, M. & Venkatachalam M. (2015). MD&A disclosure and the firm’s ability to continue as a going concern. The Accounting Review, 90 (4): 1621-1651. https://doi.org/10.2308/accr-50983
MohammadRezaei, F., Faraji, O. & Heidary, Z. (2021). Audit partner quality, audit opinions and restatements: Evidence from Iran. International Journal of Disclosure and Governance, 18 (2): 106-119.
Newton, J. D. & Ashton, R. H. (1989). The association between audit technology and audit delay. Auditing: A Journal of Practice and Theory, 8: 22–37.
Pouryousof, A., Nassirzadeh, F., Hesarzadeh R. & Askarany, D. (2022). The relationship between managers’ disclosure tone and the trading volume of investors. Journal of Risk and Financial Management, 15 (12): 618.
Pouryousof, A., Nassirzadeh, F. & Saghafi, M. (2023). Detected audit misstatements and managerial reporting tone: The mediating role of financial reporting quality. Auditing Knowledge, 23 (93): 245-273. (in Persian)
Price, S. M. K., Doran, J. S., Peterson, D. R., & Bliss, B. A. (2012). Earnings conference calls and stock returns: The incremental informativeness of textual tone. Journal of Banking and Finance, 36 (4): 992-1011. https://doi.org/10.1016/j.jbankfin.2011.10.013
Ramadan Ahmadi, M., Vaez, S. A., Arman, S. A. & Daraseh, S. S. (2022). Investigating the impact of auditor style on the relationship between financial reporting readability and stock price informativeness. Accounting and Auditing Reviews, 29 (2): 311-338. (in Persian).
Tetlock, P. C. 2007. Giving content to investor sentiment: The role of media in the stock market. The Journal of finance 62 (3): 1139-1168. https://doi.org/10.1111/j.1540-6261.2007.01232.x
Rashidi, M., Soumi, M. & Kazazi Goodarzi, M. (2024). Asymmetric reactions of abnormal audit fee jump components to changes in credit status. Accounting and Auditing Reviews, 31 (3): 492-518. (in Persian)
Rogers, J. L., Van Buskirk, A. & Zechman, S. L. C. (2011). Disclosure tone and shareholder litigation. The Accounting Review, 86 (6): 2155-2183. https://doi.org/10.2308/accr-10137
Simunic, D. A. (1980). The pricing of audit services: Theory and evidence. Journal of Accounting Research, 18 (1): 161-190. https://doi.org/10.2307/2490397
Shahsavari, M., Abbaszadeh, M. R. & Hesari, H. (2022). The tone used in the auditor’s report and audit fees with an emphasis on the moderating role of ISA 700 requirements. Empirical Studies in Financial Accounting, 19 (76): 131-161. (in Persian)
Teng, Z. L. & Han, J. (2022). Audit fees, audit report lag and abnormal tone: Evidence from China. Managerial Auditing Journal, 38 (2): 186-205.
Yang, R., Yu, Y., Liu, M. & Wu, K. (2018). Corporate risk disclosure and audit fee: A text mining approach. European Accounting Review, 27 (3): 583-594.
Yari, M., MohammadRezaei, F., Gholami Jamkarani, R. & Faraji, O. (2022). Audit fees: The role of the base fee determination guideline for audit services. Accounting and Auditing Reviews, 29 (1): 146-172. (in Persian)