research@hec - Issue #34 - (Page 4)

accounting research hec Audit fees: What is the influence of shareholders? The impact of potential conflicts between shareholders and managers on audit fees has been the topic of numerous studies in Anglo-Saxon countries. But there is no evidence that these findings apply to civil law countries such as France, where the main source of conflict concerns the relationship between majority and minority shareholders. And yet, it seems as if these conflicts have a real impact on the cost of audits Cédric Lesage B iography Cédric Lesage is a professor at HEC, where he teaches accounting, ethics, and audit research. A former auditor, his research focuses on auditing, mainly from a behavioral perspective, as well as fraudulent behavior in firms. He is a member of academic committees of various international academic associations and is a reviewer for national and international academic journals. Statutory auditing involves verifying accounts to ensure shareholders and third parties that the financial statements presented to them are honest, consistent, and reflect the actual financial situation of the company. The appointment of a statutory auditor is required in a number of jurisdictions (SA, SAS, as well as some SARL and associations that meet criteria related to revenue, number of employees, total assets, and/or subsidies). The company being audited pays the statutory auditor, who is appointed at the shareholders’ meeting. A scale established by decree determines the amount of the fee, depending on the volume of work to be done and taking into account the size of the company and the complexity of the audit to be performed. Auditing standards also require consideration of the capital structure, but what is the importance of this particular criterion for audit fees? In addition, auditors aim to protect shareholders, and their findings may lead to legal action if the latter feel aggrieved. Do fees take into account this legal risk? Are they the result of a negotiation or a calculation of the cost of work added to a risk premium? SOURCES OF CONFLICT Auditors can find themselves at the center of conflicts between managers and shareholders 4 • August-September 2013 as well as between different types of shareholders. Shareholders want to maximize the value of their shares, and managers their salaries and personal benefits, and these differences of interest can be sources of conflict. Even between shareholders, divergences are possible. Majority shareholders can have access to information about the company that can enable them to benefit at the expense of minority shareholders. In Anglo-Saxon countries, regulated by case law, investors do not hesitate to prosecute majority shareholders and managers who try to wrong them. This is more rare in civil law countries such as France. Where the risk of prosecution is low, audit fees seemingly could not apply a risk premium. But is this really the case in France? IMPACT OF EXECUTIVE SHARE OWNERSHIP ON FEES Contrary to the results highlighted in Anglo-Saxon literature, the risk of conflict between shareholders and managers has little influence on audit fees, reveal Cédric Lesage and Chiraz Ben Ali. And when leaders are shareholders, fees do not decrease, although there is no longer a divergence of interest and the audit is facilitated. This result, due to the weakness of executive share ownership (excluding

Table of Contents for the Digital Edition of research@hec - Issue #34

Cover & Contents
Reality TV: What is the legal status of participants?
Audit fees: What is the influence of shareholders?
Renewable energies in Europe: A priori beliefs and institutional pressure hinder investments

research@hec - Issue #34