Professional Auditing Research

Professional Auditing Research

The Impact of Related Party Transactions and Their Components on Audit Fees

Document Type : Original Article

Authors
mohammadmahdi ghomiyan 1
Mostafa Ghannad 2
shadi shahedizekrabadi 3
1 Department of Management, Eqbal Lahoori Institute of Higher Education, Mashhad, Iran.
2 Department of Accounting, Eqbal Lahoori Institute of Higher Education, Mashhad, Iran.
3 MSc of Accounting, Eqbal Lahoori Institute of Higher Education, Mashhad, Iran.
10.22034/jpar.2025.2067052.1446
Abstract
This study aims to examine the impact of related party transactions on audit fees. Based on the conflict of interest theory, such transactions may be used opportunistically, increasing the inherent risk for companies. Therefore, this research analyzes the relationship between different components of related party transactions, including purchases, sales, financial facilities, and intercompany payments, with audit fees.
This research follows a descriptive-correlational and post-event approach, utilizing financial data from 127 companies listed on the Tehran Stock Exchange between 2018 and 2023. The required data were collected from official financial sources and analyzed using panel regression models.
The results indicate a significant positive relationship between related party transactions and audit fees. Specifically, higher amounts of purchases, sales, financial facilities, and intercompany payments are associated with increased audit costs. These findings confirm that greater volume and complexity of related party transactions lead to higher audit risk and, consequently, higher audit fees.
The study concludes that companies with more extensive related party transactions incur higher audit fees due to the increased need for detailed examination, higher risk of financial misstatements, and greater auditor efforts to verify financial information. Therefore, reducing related party transactions can help in better managing audit costs.
This study contributes to the auditing and financial management literature by providing a more detailed understanding of the relationship between related-party transactions and audit fees. Unlike most prior studies that examined only the overall impact of such transactions, this research separately investigates their components (purchases, sales, loans, and mutual payments) over a ten-year period while controlling for key firm-specific variables. The findings offer practical insights for auditors and corporate managers in enhancing financial transparency and optimizing audit cost management.
 
Keywords
Components of related party transactions
purchase amount of transactions
sales amount
financial facilities amount

Subjects

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