Regulation and Audit Fees for Initial Audit Engagements

Document Type : Research Paper

Authors

1 Faculty of Finance, Kharazmi University, Tehran, Iran

2 Department of Accounting, Faculty of Management, University of Tehran, Tehran, Iran

3 Department of Accounting, Faculty of Management and Accounting, University of Tehran, College of Frabi, Qom, Iran

4 Crews School of Accountancy, the University of Memphis, TN, USA

Abstract

This study examines whether the audit firm ranking (AFR) mandated by the Securities and Exchange Organization (SEO) in Iran in 2013 is associated with audit fees for initial audit engagements. We propose that such regulation, in a highly competitive and compliance-driven market, could differently impact the bargaining power of auditors. Our findings indicate that audit fee discounts in initial engagements have decreased in the post-AFR era. Additionally, in line with the bargaining power perspective, audit fee discounts are greater when switching to non-Top auditors compared to Top auditors (first-ranked Trusted Audit Firms by SEO), when switching within non-Top auditors as opposed to Top auditors, and when switching from Top to non-Top auditors rather than from non-Top to Top auditors. The results are robust across several sensitivity tests and offer policy, practice, and research implications by exploring audit fee discounts in initial engagements arising from regulatory initiatives.

Keywords

Main Subjects

References

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Interdisciplinary Journal of Management Studies
Volume 19, Issue 3
July 2026
Pages 497-525

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