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Abstract

On 1 April 2016, the accounting profession witnessed a structural change when India converged its accounting standards to International Financial Reporting Standards (IFRS). IFRS-converged Indian accounting standards (Ind AS), based on principle-based standards, differ from their existing domestic rule-based accounting standards (AS). The convergence substantially impacts the Ind AS-compliant firms’ reporting frameworks and audit costs. Considering these, the current study examines the impact on audit costs of selected Bombay Stock Exchange (BSE)-listed firms. Applying the signalling and institutional theoretical lens, it adopts a longitudinal study design and assesses the CMEI ProwessIQ database, the S&P BSE 200 index and annual reports of the selected firms. A total of 105 sample firms were chosen by applying a simple random sampling technique covering a study period of 14 financial years (2009–2022). Applying inferential statistical tools, namely fixed-effect penal regression together with difference-in-difference, it tests hypotheses. Empirical results suggest that Ind AS implementation is associated with an approximately 47.7% increase in audit fees, driven by declining audit efficiency, increased risk associated with fair value measurements and a premium linked with the firm’s expertise. It offers practical implications, acknowledges a few limitations and links those with a future research road map.

Keywords

Ind AS audit cost financial reporting IFRS convergence

Introduction

Financial reporting systems across the world are experiencing changes as an increasing number of jurisdictions align their standards with International Financial Reporting Standards (IFRS) with the objective of enhancing transparency, comparability and investors’ confidence. The transition towards complex global standards significantly alters the reporting architecture of firms. Empirical results consistently indicate that such transitions have significant audit cost implications. Prior evidence indicates that when financial reporting frameworks become more judgement-oriented, auditors respond by increasing the depth of verification, expanding the audit procedure and adopting more conservative risk assessments, which together exert pressure on audit fees (Daske et al., 2013; Kim et al., 2012). Emerging economies mostly operate in an institutional framework which is insignificantly different from that of high-income countries. As a result, the cost pressure associated with changes in the reporting framework tends to be more pronounced. This heightened cost pressure stems from capacity constraints, structural inefficiencies, and the limited availability of specialized audit expertise in such economies (Habib et al., 2024a).

India’s convergence to IFRS started its journey in 2006. However, after addressing multiple challenges, it finally converged and named the new set of IFRS-converged standards as Indian Accounting Standards (Ind AS). From 1 April 2016, a significant regulatory development in the country’s corporate landscape took place with the implementation of Ind AS. Ind AS introduces extensive fair value measurements, broader disclosure requirements and greater reliance on judgement-intensive estimation, as IFRS is a principle-based standard vis-à-vis the existing accounting standards (AS), a rule-based standard. Implementation of Ind AS significantly enhances the workload of auditors and exposes them to greater audit risks. While global studies commonly report an increase in audit fees following the adoption of IFRS, the size and nature of this effect differ across jurisdictions, reflecting differences in institutional frameworks, enforcement mechanisms and the structure of the local audit market (Cascino & Gassen, 2023; De George et al., 2016).

Variations in financial reporting practices prompt critical questions regarding the applicability of evidence from developed markets to India. It is predominantly due to the audit ecosystem features’ uneven expertise across firms, along with the concentrated presence of the Big Four audit firms (viz. KPMG, E&Y, Deloitte and PwC) and gradually evolving regulatory oversight. Although the introduction of Ind AS represents a major development in financial reporting, the Indian literature examining its effect on audit cost remains limited. Literature primarily focused on the reporting quality, earnings management behaviour or challenges of its implementation but provides very little systematic evidence on audit pricing (Banker et al., 2017; Ray, 2019). Practitioners highlighted increased valuation complexity, enhanced disclosure verification and the existing knowledge gap as major constraints for the audit firms under Ind AS (ICAI, 2025). However, the literature in the Indian context reports analysing the effect of the changes due to Ind AS on audit effort, audit risk and untimely audit fees is still very much limited. This gap is significant as the Indian corporate ecosystem relies heavily on the auditors’ report to maintain the credibility of financial reporting, particularly in the Ind AS era.

From a theoretical standpoint, the implementation of Ind AS acted as a regulatory shock that altered the determinants of audit pricing. Extensive use of fair value accounting (FVA) and estimation uncertainty called for a broader audit scope and a more rigorous verification procedure. Combined with increased auditor exposure to litigation and reputational risk, it results in an auditor pricing a higher risk premium into the audit fees. The signalling theory further suggests that firms may engage highly reputed auditors, particularly Big Four, to convey credibility and compliance quality, leading to increased audit costs (Spencer, 1973). In parallel, the institutional theory suggests that firms operating in evolving regulatory environments incur higher compliance costs, especially during transition (DiMaggio & Powell, 1983). Echoing these argument, recent studies also indicate that in emerging markets, delayed capacity building may prolong cost escalation (Bamber & McMaaking, 2023; Soderstrom & Sin, 2022). Against this backdrop, the implementation of Ind AS provides an empirical setting to examine how regulatory changes influence audit pricing in emerging economies.

The study addresses three critical gaps in the extant literature. First, there is limited empirical evidence on how audit cost behaves in emerging economies. Second, only a limited number of prior studies provide channel-specific evidence on how major accounting reforms (e.g., Ind AS) influence audit costs. Third, despite India’s status as one of the world’s fastest-growing capital markets, it remains markedly unrepresented in the IFRS and Ind AS scholarship. It bridges the identified gaps and contributes to the literature in at least three ways: first, by offering insights into the audit cost dynamics in India’s emerging market context; second, by decomposing audit pricing into distinct channels for a granular analysis of reform impacts; and third, by extending signalling and institutional theories through evidence on strategic auditor selection as a credibility mechanism amid regulatory uncertainty.

The present empirical investigation aims to investigate whether the adoption of Ind AS leads to any significant increase in the audit cost for selected BSE-listed companies and also to identify the channel-specific drivers of such changes.

The objective of the study is fourfold:

To measure the pre and post-Ind AS difference in audit costs

To identify and analyse the mechanism by which Ind AS influences audit pricing

To examine the role of firm characteristics in moderating audit cost behaviour

To contribute India-specific evidence to the global IFRS literature

The article proceeds with the second section reviewing related studies and theories, and based on which research hypotheses were framed. The third section describes the adopted research methodology, the fourth section presents the empirical results, the fifth section critically discusses the results and, finally, the sixth section concludes.

The Setting

IFRS Adoption and Audit Effort: Global Evidence

Global IFRS adoption has significantly reshaped corporate reporting, governance practices and auditing worldwide. The transition from rule-based to principle-based standards calls for greater managerial judgement and reliance on accounting estimates. Being subjective, it resulted in more complex financial reporting. These changes require the auditors to examine the valuation models, estimates and disclosures with greater scrutiny, which leads to increased audit effort and audit risk (Bratten et al., 2013). Research documents that IFRS changes the way audits are priced in several concrete ways. As disclosure requirements expand, auditors must verify more information and produce more documentation, which increases the work involved in each engagement (Griffin et al., 2017; Simnett & Carson, 2019). When financial statements rely heavily on subjective estimates, auditors typically respond with more detailed testing and a strong focus on risk-oriented procedures (Goncharov et al., 2014).

Newer requirements, such as assurance over non-financial or sustainability information, create additional layers of checks, further raising the audit effort and fees (Chen & Scott, 2025). Overall, the move towards the principle-based framework tends to push the auditors towards greater professional judgement and verification, which is likely to enhance audit quality but also makes audits more resource-intensive (Deb et al., 2023). Yet effects differ by context; developed markets see modest fee hikes, primarily due to quick adoption (Habib et al., 2024b; Koshi & Valentincic, 2013), while emerging ones, on the contrary, face steeper, lasting hikes from weak enforcement and scarce skills (Baatwah et al., 2022b). IFRS adoption tends to pull audit work towards the larger audit firms with IFRS know-how, thereby further reinforcing their position in the market (Alon & Dwyer, 2014). However, in lower-middle income and emerging economies, valuation challenges amplify efforts and risks (Bui & Tran, 2021; Gyimah & Akosah, 2022). Thus, institutional factors dictate how accounting convergence affects audit costs globally.

Beyond country-level institutions, the way reform affects audit pricing also depends on firm characteristics and governance arrangements. Consequent to higher perceived risks, auditors in the case of weaker governance or more severe agency issues tend to charge higher audit fees (Cascino & Gassen, 2023). The audit cost premium gets escalated in the case of firms that require extensive audit work primarily due to intricate ownership patterns and an opaque group structure. Often, state-owned entities experience higher audit fees primarily due to stricter regulatory scrutiny and increased compliance demands (Baatwah et al., 2022a). Auditor traits, particularly auditors’ reputation, play a significant role; for example, Big Four firms generally demand a fee premium for their goodwill drawn from their global expertise, and standardized methodologies and IFRS-type reforms increase the demand for these specialized skills (DeFond et al., 2015). Moreover, the IFRS literature indicates that accounting reforms raise audit fees not only because reporting becomes more complex but also because of governance risks, the need for specialist skills and institutional pressures that shape how audits are carried out and priced.

IFRS Convergence (Ind AS): Indian Evidence

India’s convergence of accounting standards with IFRS occurred through the phased introduction of Ind AS, commencing in 2016. The initiative aimed to achieve transparency, comparability and global relevance of financial reporting among Indian firms. The Ind AS literature is in a growing stage, as it is in its ninth year of implementation. During this period, studies were conducted by academics and practitioners. However, the study carefully reviews the academic literature published in the English language, excludes predatory papers from its scope and confines itself to quality publications. During the initial years after the Ind AS implementation, studies predominantly concentrated on perception-based impact analyses, for example, on audit fees, audit quality, analysts’ forecasting, transparency, earnings management, reporting quality and other sectors.

Research examined practitioners’ expectation gap (Deb & Das, 2018), and that of both investors and practitioners (e.g., Deb et al., 2021), economic consequences of convergence (Bansal, 2022), impact on capital structure (Jain & Gupta, 2023) and impact on firm performance (Nepal & Deb, 2024). Research also investigates standard-specific issues, for example, Ind AS 116 (Soni et al., 2025). Literature suggests that Ind AS adoption has enhanced the financial reporting quality and disclosure among Indian listed companies (Panda & Mohapatra, 2020; Tiwari & Dey, 2021). However, Ind AS convergence results in complicated financial reporting, particularly in the case of financial instruments, fair value measurements and revenue recognition.

Practitioner publications in the Indian context have been vocal on how Ind AS works in practice and what it implies for day-to-day reporting and audit processes. Recent professional guidance further suggests that moving to Ind AS often forces companies to overhaul their accounting system, strengthen internal controls and redesign their financial reporting process, particularly in areas involving fair value measurements and expanded disclosure requirements (KPMG, 2025). Technical guidance issued by the professional bodies points out that auditing Ind AS-based financial statements often calls for specialized valuation expertise and additional audit documentation (ICAI, 2025). Studies report issues in different standards, for example, Ind AS 109 (Parghi, 2025), Ind AS 117 (Kothari, 2025), applicability of Ind AS in joint ventures (Banerjee, 2025), Ind AS 118 (Patel, 2025), Ind AS 21 (Khetan, 2026) and Ind AS 110 (Bajan, 2026).

Theoretical Lens

The theoretical foundation of audit fee behaviour in the backdrop of Ind AS implementation may be better understood through the lens of institutional isomorphism. It explains the propensity of firms to converge in structure and practice when exposed to identical environment pressure (DiMaggio & Powell, 1983). The transition to Ind AS may be viewed as a regulatory shock. It exposes firms to coercive pressure through mandatory compliance requirements. Simultaneously, normative pressure arises from professional expectations from auditors, regulators and standard setters. Finally, mimetic pressure emerges as firms replicate industry leaders and globally integrated firms. This convergence necessitates increased audit procedures, standardized reporting and engaging high-quality auditors, resulting in enhanced audit fees (Kim et al., 2012). While institutional isomorphism offers a broad contextual framework, other theories, such as the agency theory (Jensen & Meckling, 1976) and the information asymmetry theory (Akerlof, 1970), provide partial insights as they explain the demand for audit, but very little about how audit fees change as reporting standards evolve.

Considering these, the study is grounded primarily on the signalling theory and institutional theory, as these are found to more directly capture the micro- as well as macro-level elements influencing audit fees. The signalling theory posits that firms rely on credible external mechanisms, such as high-quality external audits, to convey transparency, legitimacy and the reliability of their financial reporting to the stakeholders (Spence, 1973). Increased reporting complexity under Ind AS may require firms to hire auditors with specialized expertise, like the Big Four firms, resulting in increased audit costs.

Institutional theory argues that firms adapt their practices to meet coercive, normative and mimetic pressure within their regulatory environments (DiMaggio & Powell, 1983). In an Indian setting, where institutional infrastructure is still developing, the cost of compliance, training and system restructuring is likely to be higher. It indicates that Ind AS implementation could result in an escalation of audit costs due to the need for firms to align with the emerging regulatory norms and expectations.

Research Gap

Drawing reference from recent literature, standards on fair value measurements and financial instruments are likely to increase audit complexity and may require enhanced professional judgement and increased documentation. Notwithstanding these developments, empirical evidence focusing on establishing a causal relationship between the transition to Ind AS and audit fees for Indian listed firms remains comparatively scarce. The reviewed literature indicates four distinct gaps. First, research on audit fee implications of IFRS convergence in emerging markets remains insufficient, especially for large economies such as India. Second, prior studies rarely analyse channel-specific pathways, for example, audit efficiency reduction, valuation-related risk or expertise premium through which accounting reform affects the audit cost. Third, there is no longitudinal evidence assessing the causal effects of Ind AS on audit fees in India. Fourth, prior research in the Indian setting did not integrate a strong theoretical framework to explain the audit pricing behaviour. Consequently, the present study attempts to close the gap based on empirical evidence.

Hypotheses Development

On the basis of the identified gaps, the study formulates the following hypotheses:

H₁: The adoption of Ind AS has an impact on the audit costs of companies listed on the BSE, which is significantly increased.

H₂: The increase in audit cost is in direct relation to the firm’s size: that is, larger firms are the ones charging the premium for Ind AS expertise.

H₃: In the post-adoption period of Ind AS, Big Four auditors impose a higher premium as compared to non-Big Four auditors.

H₄: The provisions of Ind AS fair value requirements, which imply a greater risk exposure for the companies, result in their audit cost increase being higher.

Conceptual Framework

Building on the theoretical perspective and hypotheses outlined above, the study develops a conceptual framework that links Ind AS adoption to audit pricing. The framework suggests that IFRS-converged standards increase the financial reporting complexity by placing a robust emphasis on FVA, managerial judgement and more comprehensive disclosure requirements. These changes raise the audit risk and require audit effort, which in turn leads to higher audit fees. The relationship is likely to differ across firms, depending on factors such as firm size, auditor type and the extent of fair value exposure. Figure 1 exhibits the study’s conceptual framework for executing the research.

Figure 1.

Conceptual Framework of the Study.

Research Methodology

Study Design

The study employs a longitudinal panel data design with the objective of testing the systematic changes in audit cost following Ind AS implementation among Indian listed firms. The rationale for adopting a penal approach lies in the fact that audit fees, audit risk and firm characteristics evolve, which enables the model to control for time-variant, firm-specific factors while leveraging multiple observations per firm. Fixed-effects penal regression combined with the difference-in-difference (DID) strategy is used to isolate Ind AS effects by comparing the pre-adaptation (2009–2015) and post-adaptation (2016–2022) periods while holding broad macroeconomics and industry-wide trends constant. It predominantly adopted an approach that is extensively recognized in contemporary regulatory accounting research (e.g., Christensen et al., 2015; Daske et al., 2013) due to its ability to mitigate estimation bias and improve internal validity.

Study Population

The study population consists of firms listed under the S&P BSE 200 index as of December 2022. The study population covers approximately 80% of the total market capitalization of the BSE. The selected firms demonstrate a strong adherence to reporting standards, consistent and detailed disclosure history, and the availability of audit fee data, thereby making this selection methodologically sound. Furthermore, these firms are subject to stringent regulatory oversight and are typically audited by large, highly reputed audit firms, which is likely to minimize data irregularities and enhance comparability.

Sampling Technique

To ensure representativeness and to eliminate selection bias, the study prefers a simple random sampling technique. Simple random sampling is appropriate for studies having a clearly defined sampling frame and where each firm has an equal probability of selection (Bryman, 2016; Cochran, 1977). It helps diversify the sample across industry, ownership type or size category, which is consistent with methodological standards in audit fee research (Daske et al., 2013; Kim et al., 2012).

Sample Size

The final sample size of the study is determined on the basis of the statistical power required for penal regression and the DID estimate. Further availability of data and diversity across sectors has also been considered in determining the sample size. The final sample stands at 105 firms drawn at random from the selected population of BSE 200 companies. It analyses 14 financial years (2009–2022), which resulted in a balanced panel of 1,470 firm-year observations. Firms whose audit fee data are found to be missing for two consecutive years or experience any major restructuring events like mergers or bankruptcies are excluded, to prevent potential distortions of audit cost analysis.

Data Source

The study is primarily based on secondary data. Data were collected from multiple complementary sources, such as CMIE ProwessIQ, which serves as the principal data source for key financial variables, audit fee information, firm characteristics and governance indicators; information on auditors, firm classification and listing details is obtained from the BSE website, whereas a company annual report serves as the source to verify audit disclosures and other qualitative attributes. Triangulation across these data sets strengthens consistency, minimizes measurement error and ensures the completeness of data.

Study Variables

The study variables are grouped into three categories, namely dependent, independent and control variables. Literature guides in choosing these variables on the determinants of audit fees and how accounting standard adoption or adaptation influences audit pricing are presented in Table 1.

Table 1.

Study Variables.

Variables		Measurement	Source
Name	Type	Measurement	Source
Audit fee	Dependent variable	Natural logarithm of the total audit fees paid to statutory auditors, used to correct for skewness in fee distribution	Coffie & Bedi, 2019
Ind AS dummy	Independent variable	Indicator variable equal to 1 for the post-Ind AS adoption period (2016–2022) and 0 for the pre-adoption period (2009–2015)	Kim et al., 2012
Audit firm size	Independent variable	Natural logarithm of audit firm revenue, capturing auditor capacity and scale	Kim et al., 2012
Big Four dummy	Independent variable	Binary variable equal to 1 if the auditor belongs to the Big Four firms, and 0 otherwise	Tawiah & Boolaky, 2020
Company size	Independent variable	Natural logarithm of total assets, representing firm scale and complexity	Higgins et al., 2016
Leverage	Independent variable	Ratio of total debt to total assets, reflecting financial risk	Tawiah & Boolaky, 2020
Risk exposure	Independent variable	Proportion of assets measured at fair value, capturing exposure to estimation uncertainty	De George et al., 2016
Audit lag	Independent variable	Number of days between the fiscal year-end and the audit report date	Higgins et al., 2016
Firm age	Control variable	Natural logarithm of firm age (years since incorporation), indicating organizational maturity	Alnaas & Rashid, 2019
Industry dummies	Control variable	Set of binary variables representing industry classification based on BSE sector categories (1 if the firm belongs to a given industry, 0 otherwise)	Simunic, 1980; Hay et al., 2006

Statistical Tool

Penal regression with firm fixed effects is employed to absorb time-invariant company characteristics. The fixed-effects model is opted over the random effects model because the Hausman test shows that there is a correlation between company-specific effects and regressors. The DID estimation method measures changes in audit cost between the pre and post periods, while temporal trends are taken into account. Standard errors are clustered at the firm level to address heteroscedasticity and serial correlation. These methods are appropriate for panel structure, which necessitates controlling for unobserved company heterogeneity while analysing the effects of treatments that vary with time.

Model Specification

The baseline penal regression model is:

\begin{array}{l} L o g (A u d i t F e e s_{i} t) = β^{0} + β^{1} I n d A S_{t} + β^{2} C o m p a n y S i z e_{i} t + \\ β^{3} L e v e r a g e_{i} t + β^{4} R i s k E x p o s u r e_{i} t + \\ β^{5} B i g 4_{i} t + β^{6} A u d i t L a g_{i} t + \\ C o n t r o l s_{i} t + α_{i} + ε_{i} t \end{array}

Where α_i represents company fixed effects, and ε_it is the error term.

The channel-specific analysis decomposes the Ind AS effect through interaction terms:

\begin{array}{l} L o g (A u d i t F e e s_{i} t) = β^{0} + β^{1} I n d A S_{t} + β^{2} I n d A S_{t} \times \\ C h a n n e l_{i} t + β^{3} C h a n n e l_{i} t + \\ C o n t r o l s_{i} t + α_{i} + ε_{i} t \end{array}

Significance Level and Research Validity

Conventional levels are used to measure the statistical significance (1%, 5% and 10%). Internal validity is ensured through firm fixed effects and robustness checks. External validity is ensured through random sampling of the BSE 200 companies. Construct validity is maintained through the use of predefined variables with a clear definition from previous studies. Statistical conclusion validity is supported through the use of appropriate specification tests, the application of corrections for heteroscedasticity and the use of a sample that is large enough to ensure adequate statistical power.

Results

Descriptive Statistics

Table 2 presents descriptive statistics for key variables across pre- and post-Ind AS periods.

Table 2.

Descriptive Statistics.

Variable	Pre-Ind AS (2009–2015)	Post-Ind AS (2016–2022)
Variable	Mean (SD)	Mean (SD)
Audit fees (₹ lakhs)	128.4 (89.2)	189.6 (124.7)
Company size (log assets)	9.42 (1.18)	9.78 (1.24)
Leverage	0.47 (0.23)	0.51 (0.25)
Big Four auditor (%)	62.30%	68.70%
Audit lag (days)	68.5 (12.4)	82.3 (15.7)

The descriptive statistics provide clear evidence of a substantial difference between the pre-Ind AS (2009–2015) and post-Ind AS (2016–2022) periods. Table 1 reports that the mean audit fees increased from ₹128.4 to ₹189.6 lakhs, representing a considerable escalation of approximately 47.6% following the implementation of Ind AS. A sharp increase is accompanied by only a modest growth in company size, measured by the natural logarithm of assets, and a marginal rise in leverage ratios, indicating that firms expand moderately and become somewhat more debt dependent over time. Figure 2 presents a trend analysis of average audit fees over the 14 years, which complements the tabulated statistics.

Figure 2.

Trend Analysis of Average Audit Fees (Pre- and Post-Ind AS Implementation).

Figure 2 illustrates a stable and gradual increase in audit fees during the pre-Ind AS era, followed by a clear structural break after 2016. The slope becomes noticeably steeper in the post-Ind AS era, starting in 2016, which marks the first full year of Ind AS implementation. The audit fees increased from approximately ₹118 lakhs in 2009 to ₹198 lakhs in 2022. The post-Ind AS trajectory displays sharper year-on-year increments, particularly between 2017 and 2022, highlighting the sizable and sustained rise in audit costs linked to Ind AS implementation. The cumulative 47.7% increase from pre- and post-Ind AS era visually and statistically reinforces that the regulatory shift led to significantly intensified audit costs.

The engagement of Big Four auditors increased from 62.3% in the pre-Ind AS era to 68.7% in the post-Ind AS era. It indicates that, following Ind AS implementation, more companies shifted to specialized audit firms, which are considered to be capable of handling the reporting complexities. Another salient change concerns audit lag, which increased from an average of 68.5 days in the pre-Ind AS era to 82.3 days in the post-Ind AS era. It indicates that, in the post-Ind AS era, audit completion takes more time. Such extension in audit completion likely reflects heightened verification requirements, expanded disclosures and complex valuation exercises associated with Ind AS. Descriptive statistics suggest that the Ind AS implementation significantly altered the audit environment, resulting in firms relying more on specialist auditors, thereby contributing to higher audit effort and audit fees.

Figure 3 indicates that the rise in audit cost varied across company size, with larger firms facing a more pronounced escalation.

Figure 3.

Comparative Analysis of Audit Cost Increase by Company Size Quartiles.

Regression Results

Table 3 illustrates the fixed-effect regression results, addressing the impact of Ind AS on the audit cost.

Table 3.

Panel Regression Results: Ind AS Impact on Audit Costs.

Variable	Coefficient	Std Error	t-statistics	p Value
Ind AS dummy	0.389***	0.047	8.28	0
Company size	0.312***	0.038	8.21	0
Leverage	0.145**	0.061	2.38	.018
Big Four auditor	0.287***	0.053	5.42	0
Risk exposure	0.218***	0.045	4.84	0
Audit lag	0.003***	0.001	3.15	.002
Firm age	–0.042*	0.024	–1.75	.081
ROA	–0.089**	0.036	–2.47	.014
R ²	0.742
F-statistics	187.43***
Observations	1,470

Note: ***p < .01, **p < .05, *p < .10.

The regression results support the likely acceptance of H₁, thereby indicating that the adoption of Ind AS is associated with a significant increase in the audit cost of firms (coefficient = 0.389, p < .01). This coefficient implies that, holding other firm characteristics constant, Ind AS implementation is associated with an approximately 47.7% increase in audit fees (exp (0.389) – 1 = 0.477) on average. Other factors significantly contributing to the cost of audit include firm size, leverage, engagement of Big Four auditors, risk taking and audit timing. The model has a power of explaining 74.2% of the variance in audit cost, which is a good indicator of its strength.

Channel-specific Analysis

Table 4 breaks down the different channels through which Ind AS appears to push up the audit cost.

Table 4.

Channel Decomposition Analysis.

Channel	Coefficient	Contribution to Total Increase
Audit firm size premium	0.283***	32.90%
Big Four auditor premium	0.286***	33.10%
Risk sensitivity amplification	0.376***	43.60%
Audit efficiency reduction	0.472***	61.40%

Note: ***p < .01.

The channel analysis indicates that the reduction in audit efficiency (measured by the extension of the audit lag) is the biggest contributor (61.4%) to the total increase in audit costs. The amplified risk sensitivity indicates that firms most exposed to FVA faced 43.6% rise in audit cost. Big Four auditors charged a 33.1% premium, which reflects their expertise in Ind AS, while other large firms charged 32.98% premium for their specialist skills. The results support the rejection of the null hypotheses and the acceptance of the corresponding H₂, H₃, and H₄, respectively.

Robustness Check

A variety of robustness checks have been carried out to confirm the results. At the outset, alternative audit cost measures (audit fees per asset) yield similar results, followed by sub-sample analysis based on firm size quartiles, which supports the baseline results, as the results remain consistent across all size categories. Further, industry-specific regression revealed that effects are there in all sectors; the strength of the impact varies. In addition, placebo tests based on fictitious implementation dates yield no statistically significant results, which further documents that the impact is attributable to the actual timing of Ind AS implementation. Finally, an instrumental variable approach is employed, using the timing of Ind AS adoption by peer firms as an instrument to address potential endogeneity concerns.

Discussion

The empirical results provide strong evidence that Ind AS implementation has a statistically significant and economically positive impact on audit fees among the selected BSE-listed firms. The estimated 47.7% increase in audit fees and positive Ind AS coefficient (β = 0.389, p < .01) is a clear indication that principle-based reporting escalates audit complexity, effort and pricing, thereby supporting H₁. The result is in line with the global IFRS literature, which reports higher audit costs following the introduction of a more judgement-based standard (Griffin et al., 2017; Kim et al., 2012).

From the theoretical perspective, the results are consistent with both institutional theory and signalling theory. Through the lens of the signalling theory, the increased use of Big Four and other large audit firms suggests that companies respond to regulatory complexity by hiring a large and reputable audit firm to signal the reporting quality and credibility. The positive and significant Big Four coefficient in Table 3 (β = 0.287, p < .01), coupled with the higher Big Four premium following Ind AS implementation, aligns with the view that firms are willing to incur higher audit fees to signal compliance and enhance credibility with investors and regulators, consistent with H₃. Similarly, as firms move towards principle-based standards, evidence from international IFRS studies reports a rising specialization premium, thereby reinforcing the signalling role of global audit brands (e.g., Cascino & Gassen, 2023; Simnett & Carson, 2019).

From the standpoint of the institutional theory, the results reflect the coercive pressure associated with mandatory Ind AS implementation. The transition requires the firms to implement substantial changes in accounting systems and audit procedures. The positive and significant association between audit lag and audit fees (β = 0.003, p < .01) indicates that longer audits and reduced efficiency contribute a substantial share of the fee increase, providing evidence for H₂. The fact that efficiency losses explain more than 60% of the overall fee rise is consistent with the emerging market evidence that weaker institutional capacity and limited valuation expertise make convergence more costly and protracted (e.g., Bui & Tran, 2021; Gyimah & Akosah, 2022).

Channel-specific results provide additional theoretical validation of the strong positive links between fair value exposure and audit fees, which in turn support prior results that valuation subjectivity raises audit risk and testing demands (see Goncharov et al., 2014). The regression coefficient of risk exposure (β = 0.218, p < .01) shows that firms which are more reliant on FVA bear higher audit cost, whereas the 43.6% contribution of the risk sensitivity channel suggests the auditor’s response to Ind AS-related measurement uncertainty by expanding procedures, more so in the case of entities with large financial instrument or asset valuation positions, confirming H₄. This pattern further matches international IFRS evidence that FVA is a central driver of audit risk and audit fee adjustment.

The control variables are broadly consistent with the standard audit fee models. Larger firms pay higher audit fees, reflecting a more complex reporting environment, indicating that firm size has a positive and statistically significant impact. In contrast, firm age and profitability are negatively associated with audit fees, suggesting that mature and financially viable firms benefit from lower perceived audit risk and are subject to a more efficient audit process. These patterns are in line with the classical audit pricing work (e.g., Simunic, 1980) and subsequent extension, thereby supporting the robustness of the model and reinforcing the overall support for the likely acceptance of H₁–H₄.

A critical difference between the present study and the prior Western IFRS-based literature lies in the underlying accounting, institutional and legal framework. As both cited theories originated in the Western world in different socio-economic and legal settings and are predominantly applied in IFRS adoption research, their blanket application in lower-middle income economies such as India, with a preferred IFRS convergence route instead of adoption, could mislead the concurrent validity. The setting is characterized by variations in enforcement strength, availability of valuation experts, litigation and auditor market structure. Thus, the costs associated with system adaptation tend to be higher and more prolonged in the Indian set-up. Moreover, unlike IFRS adoption, Ind AS implementation includes certain carve-outs and implementation in a phased manner, which further escalates transitional challenges for both companies and auditors. These divergences account for the magnitude and mechanism of audit fee increase observed in the study as compared to the Western evidence.

In essence, it reports that Ind AS adoption is associated with higher audit costs through several interconnected channels, such as more complex reporting requirements, greater sensitivity to audit risks, more reliance on specialist auditors and expanded audit procedures. Comparison of Indian evidence from the current study with the broader IFRS and IFRS convergence literature indicates that audit cost consequences are not confined to developed markets only but are also prominent in an emerging economy setting. The longitudinal design and large sample of Indian firms enrich the existing literature on accounting convergence and its implications for audit cost.

Conclusion

The implementation of Ind AS not only marks a major turning point in the Indian corporate reporting landscape but also reshapes the audit ecosystem in a significant way. Rather than simply modifying individual reporting rules, Ind AS has elevated institutional expectations around transparency, valuation discipline and assurance quality. In effect, Ind AS operates as a systematic catalyst, influencing how firms engage auditors, design and manage compliance systems and signal reporting credibility in the capital market. The evidence suggests that convergence with global standard generates not only technical accounting changes but also behavioural, institutional and economic consequences for firms and auditors in an emerging market setting. Accordingly, it argues that Ind AS implementation should be viewed as a long-term institutional transition. It may extend beyond immediate audit cost adjustments and contribute to the broader reshaping of the assurance ecosystem in India.

The study contributes substantially to both theory and practice by showing how firms may navigate through the regulatory transition, such as the Ind AS. On the practical front, firms must not treat Ind AS as a one-off adjustment, but rather as an ongoing challenge. Thus, firms need to move towards sustainable planning by investing in valuation expertise as well as enhanced internal control so as to ensure audit readiness. Auditors’ choice has also become more strategic as firms not only consider price but also weighting the need to signal reporting quality and credibility in an era of sophisticated principle-based standards.

The study’s results carry several practical implications for key stakeholders. First, for regulators and standard setters (The Institute of Chartered Accountants of India (ICAI)), the evidence that Ind AS raises audit costs highlights how the move to complex, principle-based standards can create a substantial compliance burden, especially in the early years of implementation. Bodies such as the Ministry of Corporate Affairs and the ICAI could therefore consider strengthening the guidance on the fair value measurement and supporting this with targeted, specialized training programmes. Second, from a corporate governance perspective, the results suggest the importance of strengthening the internal control and financial reporting systems to limit the audit cost escalation. Third, on the theoretical front, it extends the signalling theory by showing how firms choose auditors and the fees they are willing to pay serve as the signal of credibility, especially during the period of regulatory uncertainty under Ind AS. Finally, it also reinforces the institutional theory by demonstrating that coercive regulatory alterations do not affect the firms uniformly. It varies depending on the adaptation cost of firms, market segments, auditor and auditee size, and the consequent level of complexity. The channel decomposition approach introduced in the study offers a practical analytical framework for future research relating to the economic effects of accounting regulations.

Despite its contributions, the study recognizes several limitations and prefers to link these to future research avenues. First, it considers only external audit costs. It does not account for internal compliance costs or system upgrade costs, so future work may adopt a broader cost perspective to capture the full economic burden of Ind AS implementation. Second, the theoretical framework centres on signalling and institutional theories; incorporating alternative theoretical lenses may add further insights into the behaviour of firms and auditors under complex regulatory change. Third, the secondary data derived from the annual reports of the sample firms are based on underlying accounting policies. Consideration of these factors is substantial in drawing broader generalizations. Future studies may further delve deep down into this aspect. Fourth, the literature is based on the English language, which may restrict cultural and regional generalizations; future research may consider the potential value of studies that draw on a multilingual database.

Fifth, the study sample is restricted to BSE 200 companies only; findings may not replicate the experiences of small or unlisted firms. Thus, expanding the population further may provide a more comprehensive insight and enhance the generalizability of the findings across small and unlisted firms. Sixth, the study period covers only up to the year 2022; thus, expanding the study horizon in future research may further contribute to the literature. Seventh, the study assumes the uniform application of Ind AS across firms, even though differences in a firm’s fair value model or impairment approaches may influence audit effort and pricing. Finally, the statistical methods used have their inherent limitations, which may in some cases affect the results marginally; future studies may employ more robust statistical tools.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

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Ind AS Convergence: Impact on Financial Reporting and Audit Costs

Abstract

Keywords

Introduction

The Setting

IFRS Adoption and Audit Effort: Global Evidence

IFRS Convergence (Ind AS): Indian Evidence

Theoretical Lens

Research Gap

Hypotheses Development

Conceptual Framework

Conceptual Framework of the Study.

Research Methodology

Study Design

Study Population

Sampling Technique

Sample Size

Data Source

Study Variables

Statistical Tool

Model Specification

Significance Level and Research Validity

Results

Descriptive Statistics

Trend Analysis of Average Audit Fees (Pre- and Post-Ind AS Implementation).

Comparative Analysis of Audit Cost Increase by Company Size Quartiles.

Regression Results

Channel-specific Analysis

Robustness Check

Discussion

Conclusion

Footnotes

Declaration of Conflicting Interests

Funding

References