The impact of audit fees and auditor accuracy on reasonable audit expectation gap in profitable and unprofitable companies

Purpose This paper aims to examine the impact of auditor fees and accuracy on the reasonable audit expectation gap in both profitable and unprofitable companies listed on the Tehran Stock Exchange. Design/methodology/approach This study employs a quantitative approach using multiple regression analysis based on data published by companies on the Tehran Stock Exchange from 2012 to 2021, involving a sample of 128 companies. Findings The findings indicate that audit accuracy reduces reasonable expectations, while auditor fees increase this gap. Additionally, audit accuracy mitigates the gaps in reasonable, unreasonable, and total expectations for both profitable and loss-making companies, with a more pronounced effect in profitable firms. Conversely, auditor fees widen the gap between total and reasonable expectations while narrowing the unreasonable expectation gap. The impact of auditor fees is more significant in profitable companies than in loss-making ones across all stages of the expectation gap. Robustness checks, including additional regression tests, confirm the validity of the primary findings. Originality/value This research is significant in its field, offering a new approach to measuring the gap between reasonable and unreasonable expectations, thus contributing to advancing knowledge in this area. The practical implications of this research are vast, as it provides a deeper understanding of the relationship between fees and audit accuracy and reasonable expectations, thereby offering valuable insights for financial analysts and professionals in auditing and financial markets. These insights can enhance audit quality and bridge the expectation gap. Furthermore, while previous regression-based studies have established the influence of auditor fees on the overall expectation gap, this research expands on that by demonstrating the effects of auditor fees and accuracy on specific expectation gaps.