The Impact of CEO Age on Audit Fees: Evidence from Australian Firms

This report investigates the relationship between CEO age and audit fees in Australian listed companies. The research begins with an introduction that highlights the growing importance of financial reporting and auditing in a globalized business environment, emphasizing the impact of corporate...Read More

Running head: IMPACTS OF CEO AGE ON AUDIT FEES: AUSTRALIAN LISTED
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Impacts of CEO age on Audit fees: Australian Listed Companies
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1IMPACTS OF CEO AGE ON AUDIT FEES: AUSTRALIAN LISTED COMPANIES
Table of Contents
1. INTRODUCTION..................................................................................................................2
1.1 Introduction......................................................................................................................2
1.2 Background......................................................................................................................2
2. LITERATURE REVIEW.......................................................................................................3
2.1 Introduction......................................................................................................................3
2.1 Impacts of age of CEO on the businesses........................................................................4
2.3 Factors determining audit fees of business organizations................................................5
2.4 Summary..........................................................................................................................6
2.5 Literature Gap..................................................................................................................6
3. RESEARCH HYPOTHESES DEVELOPMENT..................................................................7
3.1 Introduction......................................................................................................................7
3.2 Research Objectives.........................................................................................................7
3.3 Development of Research Hypothesis.............................................................................7
4. RESEARCH METHOGOLOGY...........................................................................................8
4.1 Introduction......................................................................................................................8
4.2 Data Sources.....................................................................................................................8
4.3 Sampling Techniques.......................................................................................................9
4.4 Research Variables...........................................................................................................9
4.5 Research Models..............................................................................................................9
5. CONCLUSION....................................................................................................................10
References................................................................................................................................11

2IMPACTS OF CEO AGE ON AUDIT FEES: AUSTRALIAN LISTED COMPANIES
1. INTRODUCTION
1.1 Introduction
Over the decades, the global commercial and business operations have experienced
considerable dynamics, changes and developments, much of which can be attributed to
international phenomena of immense significance like that of Globalisation, trade
liberalisation and technological as well as infrastructural innovations, which in turn have
cumulatively made the global business scenario, more inclusive, integrated and
interconnected (Peng 2016). With the integration and increase in the level of competitions
among the businesses in almost all types of industries across the world, the importance of
proper accounting the financial management of the monetary assets and resources of the
firms has also been felt across the globe (Zadek, Evans and Pruzan 2013).
In the technologically advancing global scenario, the accounting and financial
reporting methods have also changed considerably and in the recent periods, the instances of
corporate accounting frauds have also increased considerably, both in frequencies as well as
in magnitude, as can be seen from the severe accounting scandals like that of WorldCom,
Enron and others, which in turn has led to the increase in the importance of quality of
financial reporting and auditing in the business organizations (Yallapragada, Roe and Toma
2012). The frauds have also raised questions regarding the credibility of the CEOs in those
organizations. In this context, the personal attributes of the CEOs are expected to have
considerable implications on the financial and accounting operations of the companies (Bevis
2013).
Keeping this into consideration the concerned research aims to analyse the importance
of one of the primary personal attributes of the CEOs of the companies, that is their age, on
their operations and decision-making processes as well as on their risk management and
financial management efficiencies, thereby trying to analyse whether the age of the CEOs
have influence on the auditing fees charged by the auditors from the concerned companies
where these CEOs operate. For the purpose of studying the same the research takes into
consideration the Australian listed companies.
1.2 Background
With increase in the dynamics and complexities of financial operations, the increase
in the number, magnitude and diversity of the different financial and accounting frauds have
also increased considerably. These corporate frauds can be seen to be increasing in almost all

3IMPACTS OF CEO AGE ON AUDIT FEES: AUSTRALIAN LISTED COMPANIES
types of industries and in almost all parts of the world. This can be seen from the following
figure, showing the extent of frauds and sufferings of fraud victims, in the United States of
America:
Figure 1: Increase in the number of fraud victims and extent of fraud losses in the USA
(Source: Gagliordi 2018)
Most of these frauds in the businesses can be seen to be arising out of financial or
accounting misdeeds or lack of financial foresighted as well as efficiencies of the decision-
making authorities of the companies, the CEO being one of the primary ones (Kassem and
Higson 2012). A lot of the efficiency and appropriateness of the financial aspects of the
companies depend on the overall efficiency, experience of the CEO as well as on the
effectiveness of the functions of the financial reporting process of the CEO. Again, the
auditing fees charged by the auditors from different companies also vary depending upon
different attributes of the clients (Brigham and Houston 2012). Keeping this into
consideration, the concerned research aims to study the impact of age of the CEO on the
auditing fees charged, in the Australian listed companies.
2. LITERATURE REVIEW
2.1 Introduction
This section of the research proposal tries to conduct an extensive review of the
different literary works and empirically evidenced scholarly resources, with the objective of
incorporating the opinions of the scholars, primarily regarding the impacts of age of the CEO
of the companies on the different aspects of the operational framework as well as decision-

4IMPACTS OF CEO AGE ON AUDIT FEES: AUSTRALIAN LISTED COMPANIES
making activities of the companies as well as on the attributes and factors influencing the
determination of the audit fees charged from the different companies.
2.1 Impacts of age of CEO on the businesses
There exist different perceptions regarding the ways in which the age of the CEO can
affect the different operations and especially the financial activities of the companies. The
primary notion behind the same is that with age the experience, pragmatism and as well as
the ways of dealing with risks, among the CEOs change considerably (Serfling 2014). In this
context, the primary perceptions of the different scholars can be seen to be captured as
follows:
Age of CEO and the acquisition behaviour
Yim (2013), in his elaborate research paper, highlights one of the primary
implications which the age of the CEOs in generally have on the decision-making aspects of
the businesses across the globe. According to the author, the age of the CEOs considerably
affects their decisions of acquisitions of other firms. As the paper suggests, in general
acquisitions are linked to considerable and permanent increase in the level of compensations
of the CEOs, which, encourages the young CEOs to pursue acquisitions as they are more risk
taking. However, with age the level of risk aversion among the CEOs increase, which in turn
tends to reduce their propensity to go for acquisitions.
Age of CEO and risk-taking behaviour
The assertions of Yim (2013) can be seen to be supported in the work of Serfling
(2014), who try to validate the notion regarding the negative relationship of the CEO age with
that of the level of risk-taking by the same. The author establishes the same empirically
through a negative linkage of the age of the CEOs with that of volatility of stock returns of
the concerned companies. As per the author, the older CEOs in general, make less risky
investment decisions, especially in research and development and tend to diversify the
operations of the companies to reduce the level of risks.
Age of CEO and risk of stock price crash
As highlighted by Andreou, Louca and Petrou (2017), the age of the CEO is also
indirectly related to the extent of stock price crashes of the companies in the contemporary
period. As per the assertions of the authors, hoarding of negative news is directly related to
the compensations of the CEOs, which in turn makes it more lucrative for the younger CEOs

5IMPACTS OF CEO AGE ON AUDIT FEES: AUSTRALIAN LISTED COMPANIES
to do the same, thereby asserting that younger CEOs due to their own compensation
expectations are more likely to experience stock market crashes than those firms which have
older CEOs.
Age of CEO and quality of Financial Reporting
One of the crucial observations regarding the impacts of the age of the CEO can be
seen to be put forward by Huang, Rose-Green and Lee (2012), according to whom, the age of
the CEO is also directly related to the quality of the financial reporting of the same. The
authors establish the positive relationship by analysing a sample of 3413 firms between 2005
and 2008 and also assert that aged CEOs negatively relate to the forecast of beating or
meeting analyst earnings as well as financial restatements.
Thus, from the above discussion it becomes evident that the age of the CEOs plays
considerably significant roles in different operations as well as the financial aspects and
activities of the firms.
2.3 Factors determining audit fees of business organizations
There lie different perceptions also regarding the factors which affect the fees that are
charged by auditors for auditing the financial activities of different companies across the
globe.
Equity Incentives and audit fees
According to Billings, Gao and Jia (2013), the accounting scandals in different
companies are highly influenced by the managerial incentives and in such cases the auditors
need to identify the attempted earnings manipulations. The authors argue that the equity
incentives of the executives, being positively related to accounting frauds, which in turn also
positively influence the fees charged by the auditors as they tend to perceive positive linkage
between equity incentives and audit risk.
Power of the CFOs, audit committees and audit fees
According to Beck and Mauldin (2014), the audit fees are although considerably
manipulated by the power which the CFO of the concerned companies hold. As per the
assertions of the authors, although there exist regulations for deciding and negotiating on the
auditing fees, the same can be seen to be lower in the presence of powerful CFOs while the

6IMPACTS OF CEO AGE ON AUDIT FEES: AUSTRALIAN LISTED COMPANIES
fees can also be seen to be reduced less in those scenarios where the auditing committees
hold greater power. However, the authors also suggest that the relationships between these
variables are complex.
Audit partner rotation and Audit fees
The auditing fees charged from different companies, as per Stewart, Kent and
Routledge (2015), also depend on the rotation of audit partners of the concerned companies.
Focussing on the Australian market, the authors argue that the presence of mandatory and
voluntary rotation of auditing partners is positively related to high auditing fees.
Specialisation of audit partner and audit fees
Zerni (2012), in this context, asserts that the level of auditing fees charges from
businesses also depend considerably on the level of specialization of the auditing partners of
the concerned organizations. On the basis of the notion that the skills and experience of the
auditors are human capital to the companies, the author argue that the specialisation of
auditing partners span not only in different industries but also in different types of large and
complex business institutions or larger and smaller clienteles, which influence their
efficiencies and competitiveness. This in turn has considerable implications on the level of
fees charged by the same from different companies.
2.4 Summary
As is evident from the above discussion and review of the various literary works,
there lies crucial implications of the age of the CEOs on the different operational activities as
well as on the financial risks, reporting, accounting and other aspects of financial
management and decision-making of the companies, in the contemporary period, in a
generalised framework. On the other hand, various factors like the equity incentives of the
executives, the auditing partners as well as power of the CFOs can be seen to be having
considerable implications on the auditing fees charges by the auditors or committees from
these organizations.

7IMPACTS OF CEO AGE ON AUDIT FEES: AUSTRALIAN LISTED COMPANIES
2.5 Literature Gap
The existent literary and scholarly evidences, as studied in the above section,
however, fails to show considerable assertions or findings regarding the linkages of the age of
the CEOs of different companies with that of the fees charges by the auditors in the
concerned companies and on how the former influence the latter. Keeping this into
consideration, the concerned research proposes to analyse the same, with special emphasis on
the Australian listed companies, in the contemporary period.
3. RESEARCH HYPOTHESES DEVELOPMENT
3.1 Introduction
Keeping the above discussion as well as the perceptions and opinions captured from
different scholarly and literary works and also considering the gaps which are required to be
addressed, the concerned research aims to study the relationship between the age of the CEOs
of different organizations and the audit fees charged from the concerned Australian listed
companies.
3.2 Research Objectives
The primary objectives of the concerned research can be seen to be as follows:
 To study the relationship ((if any) between the age of the CEOs and the audit fees
charged in the Australian listed companies
 To study the factors determining the audit fees in the Australian listed companies
 To study the influences of the age of the CEOs on different financial operations of the
Australian listed companies
 To explore the ways and mediums through which the age of the CEO acts as a
contributing factor in the fees structure of auditing in the Australian listed companies
3.3 Development of Research Hypothesis
As can be seen from the assertions of the different literatures taken into consideration
in the literature review section, the age of the CEOs, in general, has negative relationship
with the stock market crashes, risk taking attitudes and also has positive relationship with that
of the quality of the financial reporting in the companies. On the other hand, the literatures
also show that the auditors in general charge higher prices in those companies where they
perceive the risks of accounting frauds to be high, especially in those where the CEOs and
CFOs are more encouraged to earn equity incentives or compensation, which in turn is found
to be higher among young CEOs who tend to be more risk loving and less experienced. The

8IMPACTS OF CEO AGE ON AUDIT FEES: AUSTRALIAN LISTED COMPANIES
audit fees are also found to be less in those companies where the CEOs hold more power and
dominance, which in turn is tends to be more prominent in the case of those companies where
the CEOs are older, as with age and experience the dominance and power of the CEOs also
tend to increase.
Keeping this into consideration, the concerned research aims to explore whether the
age of the CEOs has any linkage with the auditing fees charged by the auditing authorities
from the concerned companies, emphasizing especially on the Australian listed companies.
To explore the same, the concerned research forms a set of null and alternative hypotheses
which can be seen to be as follows:
H0: The age of the CEO of the Australian listed companies is inversely related to the auditing
fees charged in the concerned organizations.
H1: The age of the CEO of the Australian listed companies is not related or positively related
to the auditing fees charged in the concerned organizations
4. RESEARCH METHOGOLOGY
4.1 Introduction
For any research to be appropriate and contributing to the area where it ventures, it is
of immense significance to form a proper and relevant research methodological framework,
consisting of appropriate and related research design, approaches, data collection, analysis
and interpretation methods, as the presence of the same makes the research findings more
authentic and the interpretation of superior quality (Neuman 2013).
4.2 Data Sources
For the purpose of carrying out the concerned study, the research aims to collect
quantitative data both from primary as well as secondary sources relevant for the concerned
research. Quantitative or cardinally measurable data are taken in the concerned research, with
the objective of capturing large volume of data, thereby incorporating the diverse perceptions
which are present regarding the ways in which the age of the CEOs influence the audit fees
and whether the relationship is positive or negative (Brinkmann 2014).
For collection of primary quantitative data, a sample of 50 employees in the
managerial and executive level in different Australia listed companies is proposed to be
selected and the data is proposed to be collected from them with the help of interviews
conducted using survey questionnaires consisting of close ended questions (Mackey and Gass

9IMPACTS OF CEO AGE ON AUDIT FEES: AUSTRALIAN LISTED COMPANIES
2015). On the other hand, the research aims to collect quantitative and statistical evidences
about the different aspects of the Australian listed companies (like those of age of CEOs,
auditing fees, profits, accounting systems, operational costs and other related aspects) from
the authentic and reliable secondary sources like those of various articles, journals, news
articles and robust statistical websites where the relevant data remain previously collected
and organized (Terrell 2012).
4.3 Sampling Techniques
For the purpose of collection of primary data regarding the perceptions existing about
the relationship between the age of the CEOs and audit fees (direct as well as indirect) the
population which the concerned research considers is that consisting of the managerial and
executive level employees in the different Australian listed companies. As this population is
considerably huge and as it is not feasible for the research to incorporate the perceptions and
opinions of all of the members of the population, the study aims to select a sample of 50
respondents from the population, selected by random sampling method (Sen and Singer
2017). The random sampling method is proposed to be used in the concerned research so as
to remove any intended or unintended bias in the process of sample selection as in this
method of sample selection all the units of a population has equal chance or probability of
getting selected (Levy and Lemeshow 2013).
4.4 Research Variables
Variables in any research are in general of two types- dependent and independent
variables. The independent variables are those based on the dynamics and changes of which
the dependent variable and their dynamics vary (Schwab 2013). In the concerned study, the
variables are as follows:
Primary independent variable- Age of the CEOs in Australian listed companies
Primary dependent variable- Auditing fees in the companies
The relationship between the primary independent and dependent variables are proposed to
be studied with the help of the following mediating and controlling variables:
 Financial reporting quality of the CEOs
 Risk averse or risk loving behaviour of the CEOs
 Extent of accounting frauds in the concerned companies
 Power and dominance of the CEOs in the concerned companies

10IMPACTS OF CEO AGE ON AUDIT FEES: AUSTRALIAN LISTED COMPANIES
4.5 Research Models
For the purpose of testing the hypothesis formed in the concerned research, the
following statistical models are proposed to be used:
a. Pearson Correlation Coefficient- This statistical test is proposed to be used in the
concerned research so as to measure the correlation (positive or negative) between the
different study variables taken into consideration in the concerned research. It is a bivariate
analysis, the value of the coefficient of which (r), varies between +1 and -1 (Sedgwick 2012).
b. Regression Analysis- While the correlation analysis shows the presence or absence of
relationship between two variables it does not determine the cause and effect direction of the
relationship. For the purpose of analysing the direction of relationship between the variables
and also for the purpose of determining the level of significance of the relationship the
regression analysis is proposed to be used by the concerned research (Seber and Lee 2012).
5. CONCLUSION
In the contemporary period, with the rising number of incidents of accounting and
financial frauds and increase in the dynamics of financial activities and auditing practices in
the business organizations in the contemporary period, it becomes immensely important to
consider the different aspects of the roles played by the CEOs of the companies and their
attributes in these aspects. Keeping this into consideration, the concerned research proposes
to analyse and study implications which the age of the CEOs of the Australian listed
companies have on the auditing fees which the concerned companies face and also tries to
determine the ways in which the former affects the latter. The research, if conducted properly
and robustly, expects to have considerable implications for future researches in these
domains, especially in the areas related to role of the CEOs, their decision-making aspects,
risk management, financial management and auditing aspects in the businesses, not only in
the commercial domains of Australia but also across different parts of the globe.

11IMPACTS OF CEO AGE ON AUDIT FEES: AUSTRALIAN LISTED COMPANIES
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