Impact of CEO Age on Audit Fees: Professional Research and Analysis

Running head: PROFESSIONAL RESEARCH AND ANALYSIS
Professional Research and Analysis
University Name
Student Name
Authors’ Note

2
PROFESSIONAL RESEARCH AND ANALYSIS
Table of Contents
Development of Hypothesis.......................................................................................................2
Research Methodology...............................................................................................................5
Conclusion..................................................................................................................................7
References..................................................................................................................................8

3
PROFESSIONAL RESEARCH AND ANALYSIS
Development of Hypothesis
Based on the standpoint of individual characteristics of CEO, this current paper indicates
towards the demographic research technique to assess whether CEO age exerts impact on
overall disbursement of premiums audit fee to different auditors who express “high quality”
indications.
However, it can be hereby observed from the prior literature on determinants of audit fees
that audit fees determinants can be enumerated from client of audit as well as auditor level.
Based on the standpoint of the association between the corporation and fees for audit, it can
be observed that corporations that deliver “superior quality” indications to market have the
tendency to obtain premium level audit fees. For instance, “Big 4” can be observed to obtain
higher fees for audit in comparison to other corporations (Leventis et al. 2018).
Fundamentally, it is worth observing that these kinds of studies are founded on an implied
supposition that assessors at the corporation deliver the same quality of audit and accept the
equal level of audit fees. In essence, this is opposing to the inferences drawn by the subsisting
literature of individual characteristics of auditors, that divulges the fact that there are
variances among assessors and their individual features work directly on different cognitive
styles along with behaviours of decision-making and in that way exerting impact on quality
of audit (Huang et al. 2014).
The current study essentially intends to analyse the way individual features of CEOs
(particularly age is taken into consideration in this regard) affect the decision making
regarding auditing of firms. Sundgren and Svanström (2014) suggest that age is a wild card of
leadership since head-hunters as well as corporate boards think over trade-offs namely energy
level vs. wisdom. It can be observed that an experienced and aged CEO might perhaps help a
firm to avert repeating mistakes; however, on the other hand, the flexibility of young and

4
PROFESSIONAL RESEARCH AND ANALYSIS
youthful CEOs might perhaps be significant in a situation of speedy adjustments (Sundgren
and Svanström 2014). “As anticipated, it was observed from an interaction between
particularly situation and age, participants of a study approved older leaders over the younger
ones for preserving stability and young leaders over older ones for assisting in bringing about
change as per the journal “The Leadership Quarterly”. As per prior reports, it can be said that
there are significant differences in attitudes between an old and young CEO. The old ones
have greater experience and tend to be risk averse and have the inclination to carry out
appropriate audit that can alleviate risks of business. For that reason, they have a tendency to
auditors with specialized know-how, higher efficiency and better reputation. (Chen et al.
2015). Managers are essentially negotiators of fees of audit and have authority to make
judgement regarding selection of services of audit. The subsisting literature reveals that
assessors charge higher amount of fees when they observe an enhancement in audit as well as
risk of business in a particular audit engagement (Huang et al. 2014). Therefore, there arises
a debate between energy, knowledge, maturity, risk aversion, horizon issues of CEOs that
affect the selection of auditors of firms and pricing of audit.
Provided that CEOs of firms do not characteristically decide corporate strategies alone but
makes judgements as a member of the entire team, therefore, the risk preference of diverse
other senior officials can also contribute towards overall profile of risks of firms. In case, if
age of an executive exerts impact on preferences of risk, then executives belonging to similar
group of age as the firm’s CEO must reinforce CEOs’ risk-taking behavior. Hrazdil et al.
(2018) examined whether preferences of risk affect risk-taking behavior of particularly
CEOs. However, it could be observed that firm risk can be recorded to be the lowest at the
time when both the CEO and influential executives are necessarily older. Na and Hong
(2017) suggest that the financial background of firms’ CEOs also alleviates the risk of firm’s
poor performance and existent risk of failures of firms. Also, the background of different