The Relationship between Auditor’s Narcissism and Expectation Gap with Audit Fees: Evidence from an Emerging Market

Document Type : Original Article


1 Accounting, Management and Accounting, Khayyam Higher Education Institute Of Mashhad, Mashhad, Iran

2 Accounting, Management Accounting, Khayyam Higher Education Institute Of Mashhad, Mashhad, Iran


The present study aims to assess the relationship between auditor’s narcissism, expectation gap, and audit fee in listed firms on the Tehran Stock Exchange. In other words, this study attempts to answer the question of “whether a narcissistic auditor contributes to the expectation gap and the amount of fee or not.” The multivariate regression model is used for hypothesis testing. The study's hypotheses were also tested using a sample of 768 listed year-firm on the Tehran Stock Exchange during 2012-2017 by applying the panel data approach and employing the fixed effects model. The obtained results also indicate that there is a positive and significant relationship between auditor’s narcissism and expectation gap and a negative and significant relationship exists between auditor’s narcissism and audit fee, which means that the increase of narcissistic features in an auditor would increase the expectation gap between auditor and users. In contrast, the presence of such features in the auditor affects its payment. Moreover, the results of hypothesis testing show that there is a negative and significant relationship between auditor change and audit expectation gap. This study utilized an empirical model for evaluating the audit expectation gap and the variable of signature magnitude for measuring narcissism. Further, this paper is the first study to assess such a relationship. Hence, the present study contributes to developing science and knowledge in this field and helps lawmakers present more effective standards and regulations based on society's needs and the obtained results.


  1. Aabo, T. and Bang Eriksen, N. (2017). Corporate risk and the humpback of CEO narcissism. Review of Behavioral Finance, 10(3), pp.252-273.
  2. Al-Najjar, B. (2018). Corporate governance and audit features: SMEs evidence. Journal of
  3. American Psychiatric Association (APA) (1994). Diagnostic and Statistical Manual of Mental Disorders, 4th ed., American Psychiatric Association, Washington, DC.
  4. Anderson, J.C. Lowe, D.J and Reekers, P.M.J. (1993). Evaluation of auditor decisions: Hindsight bias effects and the expectation gap. Journal of Economic Psychology, 14(4), pp.711-737.
  5. Archambeault, D. and DeZoort, F.T. (2001). Auditor opinion shopping and the audit committee: An analysis of suspicious auditor switches. International Journal of Auditing, 5(1), pp. 33-52.
  6. Ardelean, A. (2013). Auditors’ Ethics and their Impact on Public Trust. Procedia Social and Behavioral Sciences, 92(11), pp. 55-60.
  7. Banimahd, B. Dianati Dilami, Z. and Javanmard, M. (2013). Narcissism in Iranian auditing profession. Management Science Letters, 3(5), pp. 1421-1426.
  8. Beattie, V. Brandt, R. and Fearnley, S. (1998). Auditor independence and the expectations gap: Some evidence of changing user perceptions. Journal of Financial Regulation and Compliance, 6(2), pp. 159-170.
  9. Beck, G.W. (1973). The role of the auditor in modern society: an empirical appraisal. Accounting and Business Research, 3(10), pp. 117–122.
  10. Behzadian, F. Izadi Nia, N. (2017). An Investigation of Expectation Gap between Independent Auditors and Users from Auditing Services Related to the Quality of Auditing Services Based on Their Role and Professional Features. Asian Journal of Accounting Research, 2(2), pp. 36-47.
  11. Best, P., Buckby, S. and Tan, C. (2001). Evidence of the audit expectation gap in Singapore. Managerial Auditing Journal, 16(3), pp. 134-144.
  12. Bonner, S.E. and Sprinkle, G.B. (2002). The effect of monetary incentive on effort & task performance: Theories, evidence and framework of research. Accounting, Organizations and Society, 27(4-5), pp. 303–345. (01)00052-6.
  13. Boterenbrood, R. (2017). The Audit Expectation Gap between Companies and Their Auditors: An Exploratory Study. Global Business Review, 18(5), pp. 1124-1133,
  14. Bryan, D.B. Mason, T.W. and Reynolds, J.K. (2018). Earnings Autocorrelation, Earnings Volatility, and Audit Fees. A Journal of Practice & Theory, 37(3), pp. 47-69.
  15. Buslepp, W. Legoria, J. Rosa, R. and Shaw, D. (2019). Misclassification of audit-related fees as a measure of internal control quality. Advances in Accounting, (Accepted paper)
  16. Callen, A.E. and Siregar, S.V. (2012). Audit Quality on Earnings Management and Firm value. Finance and Banking Journal, 14(1), pp. 30-43.
  17. Campbell, W.K. Bush, C.P. Brunell, A.B. and Shelton, J. (2005). Understanding the social costs of narcissism: the case of the tragedy of the commons. Personality and Social Psychology Bulletin, 31(10), pp. 1358–1368,
  18. Campbell, W.K. Hoffman, B.J. Campbell, S.M. and Marchisio, G. (2011). Narcissism in organizational contexts. Human Resource Management Review, 21(4), pp. 268-294,
  19. Chen, H. Hua, S. Liu, Z. and Zhang, M. (2019). Audit fees, perceived audit risk, and the financial crisis of 2008. Asian Review of Accounting, 27(1), pp. 97-111.
  20. Cheng, L. Mitra, S. and Song, H. (2017).Organized Labor and Audit Fees. Accounting Horizons, 31(4), pp. 93-108.
  21. Choi, J.H. Kim, C.F. Kim, J.B. and Zang, Y. (2010). Audit office size, Audit Quality and Audit pricing. A Journal of Practice & Theory, 29(1), pp. 73-97.
  22. Cohen Commission. (1978). Report of the Commission on Auditors’ Responsibilities; Conclusions and Recommendations. American Institute of Certified Public Accountants, New York, State of New York
  23. Cohen, J. Ding, Y. Lesage, C. and Stolowy, H. (2010). Corporate fraud and managers’ behavior: Evidence from the press. Journal of Business Ethics, 95(2), pp. 271–315.
  24. Cyert, R.M. and March, J.G. (1963). A Behavioral Theory of the Firm. Englewood Cliffs, N.J.: Prentice-Hall.
  25. Davis, L.R. Ricchiute, D.N. and Trompeter, G. (1993). Audit Effort, Audit Fees band the Provision of Non-audit Services to Audit Clients. The Accounting Review, 68(1), pp. 135–150.
  26. De Martinis, M. Aw, A. and Meng Kim, E. (2000). An Examination of the Audit Expectations Gap in Singapore. Asian Review of Accounting, 8(1), pp. 59-82.
  27. Dennis, I. (2010). What do you expect? A reconfiguration of the audit expectations gap. International Journal of Auditing, 14(2), pp. 130‐
  28. Dibia, N. (2015). Audit Expectations Gap and Perception of Financial Reporting. International Journal of Managerial Studies and Research, 3(3), pp. 23-31.
  29. Enes, E.F. Almeida, Silva, A.M.F.G.da. Carvalho, F.P. and Simões, J.M.M. (2016). Education as a contribution to reduce the audit expectation gap: The Portuguese case. Review of Applied Management Studies, 4(1), pp. 10-19,
  30. Flint, D. (1998). Philosophy and Principles of Auditing: An Introduction. Basingstoke: Macmillan Education, London, UK.
  31. Füredi-Fülöp, J. (2015). Theory of Assessment and Practical Aspects of Audit Expectation Gap in Hungary. Master thesis.
  32. Gbadago, F.Y. (2015). Audit expectation gap and MBA accounting students’ knowledge on auditor(s)’ responsibilities: Evidence from a public university in Kumasi Ashanti Region of Ghana. Journal of Accounting and Taxation, 7(4), pp. 53-61.
  33. Gul, F.A. Khedmati, M. Lim, E.K. and Navissi, F. (2018). Managerial Ability, Financial Distress and Audit Fees. Accounting Horizons, 32(1), pp. 29-51.
  34. Guy, D.M. and Sullivan, J.D, (1988). The expectation gap auditing standards. Journal of Accountancy, 165(4), pp. 36-46.
  35. Handley-Schashler, M. and Li, S. (2007). International Effects of The Andersen Accounting and Accounting Scandals: Some Evidence from the US, UK and Australian Stock Markets. Corporate Ownership and Control, 4(3), pp. 220-231.
  36. Hanlon, D. Khedmati, M. and Lim, E.K. (2019). Boardroom Backscratching and Audit Fees. A Journal of Practice & Theory, 38(2), pp. 179-206.
  37. Healy, P.M. and Palepu, K.G. (2003). The fall of Enron. Journal of Economic Perspectives, 17(2), pp. 3-26.
  38. Hoitash, R. Markelevich, A. and Barragato, C. (2007). Auditor fees and audit quality. Managerial Auditing Journal, 22(8), pp. 761-786.
  39. Humphrey, C. Moizer, P. and Turley, S. (1992). The audit expectations gap—plus ca change, plus c'est la meme chose?. Critical Perspectives on Accounting, 3(2), pp. 137-161. (92)90008-F.
  40. Iskandar, T. Zuraidah, M.S. Ria Nelly, S. and Rita, A. (2012). Enhancing auditors' performance: the importance of motivational factors and the mediation effect of effort. Managerial Auditing Journal, 27(5), pp. 462–476.
  41. Jensen, M.C., and Meckling W.H., (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics (October): 305-360.
  42. Kumari, J.S. Ajward, A.R. and Dissabandara, D.B.P.H. (2017). The Audit Expectations Gap and the Role of Audit Education: Evidence from Sri Lanka. Vidyodaya Journal of Management, 3(1), pp. 01-26,
  43. Kusanoa, M. and Sakuma, Y. (2019). Effects of recognition versus disclosure of finance leases on audit fees and costs: Evidence from Japan. Journal of Contemporary Accounting & Economics, 15(1), pp. 53–68.
  44. Kwon, S.Y. and Yi, H.S. (2018). Do Social Ties between CEOs and Engagement Audit Partners Affect Audit Quality and Audit Fees?. A Journal of Practice & Theory, 37(2), pp. 139-161.
  45. Lazarus Elad, F. (2017). The Impact of Audit Education on the Audit Expectation Gap: Evidence from Civilekonom Students in Sweden. Master’s Thesis, Karlstad University.
  46. Lee, T.A. (1970). The nature of auditing and its objectives. Accountancy, 81(920), pp. 292–296.
  47. Lee, T.H. and Ali, A.M. (2008). The Knowledge Gap and Deficient Performance Gap between Auditors and Corporate Managers an Empirical Study in Malaysia. Gadjah Mada International Journal of Business, 10(1), pp. 113-133.
  48. Liggio, C.D. (1974). The Expectation Gap: The Accountant’s Waterloo. Journal of Contemporary Business, 3(3), pp.27-44.
  49. Lyubimov, A. (2019). How do audit fees change? Effects of firm size and section 404(b) compliance. Managerial Auditing Journal, 34(4), pp.393-433. MAJ-07-2018-1938.
  50. Mansur, H. and Tangl, A. (2018). How to Bridge the Audit Expectation Gap?. Journal of Social Sciences (COES&RJ-JSS), 7(2), pp. 61-73,
  51. Masoud, N. (2017). Audit Expectation Gap among Undergraduate Accounting Students at Jordanian Universities. Journal of Private Equity, 20(2), pp. 73-89.
  52. Masoud, N. (2017). Audit Expectation Gap among Undergraduate Accounting Students at Jordanian Universities. Journal of Private Equity, 20(2), pp. 73-89.
  53. McEnroe, J.E. and Martens, S.C. (2001). Auditors’ and Investors’ Perceptions of the Expectation Gap. Accounting Horizons, 15(4), pp. 345-358.
  54. Messier, W.F. Glover, S.M. and Prawitt, D.F. (2005). Auditing and assurance
    services: A systematic approach. McGraw-Hill, Inc, New York.
  55. Mohammadi, M. Kardan, B. and Salehi, M. (2018). The relationship between cash holdings, investment opportunities and financial constraint with audit fees. Asian Journal of Accounting Research, 3(1), pp. 15-27.
  56. Ojo, M. Ali, A. Lee, T.H. Mohamad, R. Mohamad Yusof, N.Z. (2016). The Audit Expectations Gap: Mitigating Information Asymmetries and Corporate Social Responsibility as a Signaling Device. DOI: 10.4018/978-1-5225-0305-7.ch012.
  57. O'Keefe, T.B. King, R.D. and Gaver, K.M. (1994). Audit fees, industry specialization, and compliance with GAAS reporting standards. A Journal of Practice & Theory, Vol. 13, No. 2, pp. 41-55.
  58. Olagunju, A. and Leyira, M.C. (2012). Audit Expectation Gap: Perspectives of Auditors and Audited Account Users. International Journal of Development and Management Review, Vol. 7, No. 1, pp. 197-2015.
  59. Olsen, K.J. and Stekelberg. (2015). CEO Narcissism and Corporate Tax Sheltering. Journal of the American Taxation Association, 38(1), pp.
  60. Operu, W.Z. (2016). Investor perception of audit expectation gap a study of the Nairobi securities exchange. School of Business, University of Nairobi, Nairobi, Republic of Kenya, College of Humanities and Social Sciences (CHSS),
  61. Pierce, B. and Kilcommins, M. (1996). The Audit Expectation Gap: The Role of Auditing Education. Working Paper, School Research Papers Series, Dublin City University Business, Ireland
  62. Porter, B. (1991). Narrowing the audit expectation-performance gap: a contemporary approach. Pacific Accounting Review, 3(1), pp. 1–36.
  63. Porter, B. (1993). An empirical study of the audit expectation-performance gap. Accounting and business research, 24(93), pp. 49-68.
  64. Porter, B. and Gowthorpe, C. (2004). Audit Expectation-Performance Gap in the United Kingdom in 1999 and Comparison with the Gap in New Zealand in 1989 and in 1999. Institute of Chartered Accountants of Scotland, Edinburgh.
  65. Porter, B. Simon, J. and Hatherly, D. (2005). Principles of External Auditing. John Wiley and Sons, New York.
  66. Pourheydari, O. and Abousaiedi, M. (2011). An empirical investigation of the audit expectations gap in Iran. Journal of Islamic Accounting and Business Research, 2(1), pp. 63-76.
  67. Raskin, R. and Terry, H. (1988). A principal-components analysis of the narcissistic personality inventory and further evidence of its construct validity. Journal of Personality and Social Psychology, 54(5), pp, 890-902.
  68. Salehi, M. Jahanbin, F. and Adibian, M.S. (2019). The Relationship between Audit Components and Audit Expectation Gap in Listed Companies on the Tehran Stock Exchange. Journal of Financial Reporting and Accounting, 18(1), 199-222.
  69. Salehi, M. (2016). Quantifying Audit Expectation Gap: A New approach to Measuring Expectation Gap. Zagreb International Review of Economics & Business, 19(1), pp. 25-44,
  70. Salehi, M. and Dastanpoor, Z. (2018). The effects of psychological factors on the performance of independent auditors in Iran. Current psychology, 40(2).
  71. Salehi, M. Jafarzadeh, A. and Nourbakhshhosseiny, Z. (2017). The effect of audit fees pressure on audit quality during the sanctions in Iran. International Journal of Law and Management, 59(1), pp. 66-81.
  72. Shan, Y.G. Troshani, I. and Tarca, A. (2019). Managerial ownership, audit firm size, and audit fees: Australian evidence. Journal of International Accounting, Auditing and Taxation, 35(2). pp. 18-36.
  73. Simunic, D.A. and Stein, M.T. (1987). Product Differentiation in Auditing: Auditor Choice in the Market for Unseasoned New Issues. Canadian Certified General Accountants' Research Foundation, Vancouver, Canada. Small Business and Enterprise Development, 25(1), pp. 163-179.
  74. Steen, M. (1990). Audits and Auditors-What the Public Thinks. KPMG peat Marwick McLintock, London.
  75. Taebi Noghondari, A. and Foong, S. (2013). Antecedents and consequences of audit expectation gap. Managerial Auditing Journal, 28(5), pp. 384-406.
  76. Timothy Louwers, T. Blay, A. Sinason, D. Strawser, J. and Thibodeau, J. (2011). Auditing & assurance services. McGrawHill, Irwin.
  77. Wallace, W.A. (1987). International accounting and likely approaches to future inquiry: an overview of research. Management International Review, 27(2), pp. 4-25,
  78. Zhuang, Z. (2018). The Importance of Partner Narcissism to Audit Quality. Accounting & Law Seminar, School of Accountancy, CUHK Business School, The Chinese University of Hong Kong.