The Impact of Company’s Entrance into Article 141 of the Iranian Trade Act on Audit Fees: Evidence from Tehran Stock Exchange

Document Type : Auditing


Sistan and Baluchistan University


According to Article 141 of the Iranian Trade Act, if half and more of the company's capital is destroyed due to the losses, the corporate board of directors is obliged to typically call for the extraordinary general meeting of shareholders immediately to decide on the dissolution or survival of the company. Whenever they do not vote to dissolve, in accordance with provisions of Article 6 in this law, the company must sufficiently reduce its capital to the extent to which is tangible. Hence, along with the entrance of the company into Article 141 of the Iranian Trade Act, the continuity assumption of the company may confront with ambiguity. Such a specific situation enhances audit risk since auditors are in a state of ambiguity in which they are naturally supposed to be more diligent, particularly to properly examine continuity assumption. The current paper aims to examine whether under this circumstances auditors demand higher fees in Tehran Stock Exchange (TSE), thus all companies subject to Article 141 for at least one fiscal year during 2012-2017 are surveyed as the statistical society and the direct impact of this specific subject on audit fees is carefully investigated by panel data. Empirical findings reveal that our sample experiences a significant increase in audit fees during periods in which they have been included in Article 141 of the Iranian Trade Act, comparing to years they have been uncovered by this Article. This paper enthusiastically fulfills an identified need to typically discover one possible reason of enhancing audit fees in TSE and also expands the academic literature in this arena in a developing country- Iran.


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