THE IMPACT OF OTHER COMPREHENSIVE INCOME AND THE AUDIT PRACTICE IN THE PROFESSIONAL JUDGMENTS OF MANAGERS

Abstract

Other comprehensive income (OCI) may lead to numerous professional judgments that are required to be done by managers, especially due to fair value measurement. The auditors may find this matter as a challenge for their audit risk assessment and extension of their audit work and as a result a specific level of audit fees. Previous empirical studies identified that the volatility of OCI may influence significantly the assessment of the audit risks. This study empirically explores the relationship between the audit fee and the OCI of Big 4 clients and non-Big 4 clients in the case of listed European companies (France, Germany, Spain and Italy) for the period 2017- 2021. We test the hypothesis that when other conditions remained unchanged, other comprehensive income is positively correlated with audit fees. Additionally, we included in the hypotheses tested variables related to the type of audit firm (Big4 or non-Big4) and type of the audit report (qualified or modified audit report). Results indicate that the audit fee in France, Germany, Spain and Italy is not significantly influenced by the audit risks generated by the volatility of OCI. However, Big4 auditors showed awareness regarding this risk and have correspondingly higher fees compared with non -Big4.

Keywords

• other comprehensive income
• audit fee
• audit report
• big 4 firms