Regulation and Audit Fees for Initial Audit Engagements

Articles in Press

Document Type : Research Paper

Authors

1 Kharazmi University

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

3 Department of Accounting, Faculty of Management and Accounting, Farabi Campus, University of Tehran, Qom, Iran

4 The University of Memphis

Abstract

We examine 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.

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Interdisciplinary Journal of Management Studies

Articles in Press, Accepted Manuscript
Available Online from 19 October 2025

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