The Impact of Risk and Loss on the Demand for Audit Quality

Document Type : Research Paper

Authors

1 Assistant Professor, Department of Accounting, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran

2 Assistant Professor, Department of Accounting, Faculty of management and accounting, College of Farabi, University of Tehran, Qom, Iran

3 Graduated from Al-Zahra University with a master's degree in auditing, Alzahra University, Tehran, Iran.

Abstract

Examining the factors affecting demand for audit quality from the perspective of managers, is an interesting topic. Our research investigates the effect of risk aversion and loss aversion on managers’ demand for audit quality. We have utilized an experimental method with 2*2 between subject’s factorial designs. Manipulated variables are risk and loss. The sample consists of 88 subjects including professionals and academics randomly assigned to four groups. The results showed that in the presence of risk, managers ‘demand for quality audit decreases. Also, if there is potential loss for the company, managers are less likely to demand for high audit quality. The existence of risky conditions and the possibility of loss cause managers to tend to increase their discretion and freedom of action in reporting. This reduces the demand for managers for quality audit services. The results of this study, by identifying the behavioral factors affecting the demand for quality auditing, provide valuable information in the field of audit quality and judgment and decision-making in accounting.

Keywords

References

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History

  • Receive Date: 13 December 2021
  • Revise Date: 24 January 2022
  • Accept Date: 25 January 2022

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