Complexity of IAS 36 and Audit Fees: Empirical Analysis from Reconciliation Statements

Muhammad Shahin Miah


This study investigates the impact of reconciliation adjustments
associated with International Accounting Standards (IAS) 36 Impairment of
Assets (hereafter IAS 36) on audit fees. Prior studies show that this standard is
highly complex. This is because lot of judgmental issues/management’s
discretion involved in this standard, which requires auditors’ more attention.
However, no study explores what are the complexities involved in this standard,
and how these can affect auditors’ risk level which is investigated in this study.
Data relating to standard’s complexity is collected from annual reports, and
audit fees related data is collected from SIRCA database. Analyzing 1122 firmyear
observations from Australian perspective, this study finds that IAS 36
significantly increases auditors’ efforts and risks level, which results in increase
in audit fees. In addition, when main base line regression is run industry sector
wise, results show that IAS 36 does not affect all industry sectors and does not
have equal impact on audit fees. However, there is a significant impact of IAS
36 on audit fees in Material, Retailing, Pharmaceuticals, and Energy sectors.
Overall, the results suggest that auditors charge incremental audit fees for firms
which are exposed to higher level of complexity due to certain accounting
standards (e.g., IAS 36). This paper contributes to audit fee literature by
providing a finer way of measuring complexity associated with IAS 36, and how
such complexity affects auditors. This study is also useful to countries who are
in the adoption process or planning to adopt IFRS in future to have well
preparation for IFRS adoption.


IFRS, IAS, Accounting complexity, Audit fees, Industry Specialization, Reconciliation Adjustments.

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