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... First, and most prominently, a considerable number of these studies examines audit fees as a function of auditee size, hypothesizing that the fees would be higher for larger auditees. Their results demonstrate a strong correlation between the quantum of fees and the size of the auditees (Simunic 1980), including in specific markets such as the United Kingdom (Chan et al. 1993), Australia (Carson et al. 2004), New Zealand (Firth 1985), Hong ...
... Researchers have proffered two reasons for this phenomenon. The first is the effect of the economies of scale and the second is the existence of more robust internal controls in large companies (Firth 1985;Ho & Ng 1996). ...
... Third, audits fees are predicted to be higher if the engagement is likely to pose a higher risk to the auditing firm (Firth 1985). Risks may emanate from the industry or business in which the auditee is operating to other internal factors that could potentially prejudice the reputation of the auditor (Chan et al. 1993). ...
... Reports from many studies suggest that complexity in terms of scope of operation or in respect of position statement composition has a significant impact on the level of the audit fee. However, Firth (1985) reported in his study that number of subsidiaries and the scope of operations were statistically insignificant to variation in audit fees charged by the auditors. Kim, Liu and Zheng (2012) analyzed the effect of IFRS adoption on audit fees in European Union countries on their study conducted in 2012. ...
... fitability and audit fees in the UK, even though studies conducted by Simunic (1980) Francis and Simon (1987) and (Hay et al., 2008) concluded that the profitability was significantly associated with audit fees. Only few researchers (Simon and Francis, 1988;Joshi and Al-Bastaki, 2000;Whisenant et al., 2003) have used profitability in their studies . Firth, (1985); Simon et al., (1986); Chung and Lindsay, (1988); Low et al., (1990) ;Dugar, Ramanan and Simon, (1995);and Waresul and Moizer, (1996) in their studies stated that, audit firm profitability is considered as an important indicator of management performance and its efficiency in allocating available resources. The audit profitability can b ...
... This finding is in line with the studies of Joshi and Al Bastaki, (2000). Most of the prior research done indicate that the amount of audit fees is significantly influenced by audit profitability (Sandra and Patrick;1996, Firth, 19851986, Chung and Lindsay;1988, Low et al.;1990, Dugar, Ramanan and Simon;1995, and Waresul & Moizer;1996). ...
The focus of this study is to examine the factors influencing the pricing of audit services among quoted financial firms in
Nigeria. Secondary data sourced from transparency and annual reports of selected financial firms in Nigeria for a period
of 2006 to 2016 was analysed using Ordinary Least Square (OLS) multiple regression. Pearson correlation matrix was
used to check for multi co-linearity presence in the model and to explore the relationship between the explanatory
variables and the dependent variable. The findings of the study revealed that audit risk has positive and statistical
significant influence on audit fee which means that the higher the audit risk involved, the higher the audit fee charged. In
addition, audit profitability (APROF) was found to have a positive effect on audit fee charged by auditing firms and this
was statistically significant at 1%.This invariably means that on the basis of auditing firm charging of audit fee to their
clients, profitability of their client impact au
audit fee to companies that are profitable than those that are not.
has a negative influence on audit fee which is not sta
charge higher audit fees than those with less characteristics. Therefore,
in incurring, operational and financial risks in the course of
minimum.
... It also found that the size of the assets of the audited entity and the complexity of the business measured by the number of holding subsidiaries significantly affected the audit fees [3]. Firth (1985) used the data from the New Zealand audit market to draw conclusions that were basically consistent with Simunic (1980) and Francis (1984) [4]. ...
... It also found that the size of the assets of the audited entity and the complexity of the business measured by the number of holding subsidiaries significantly affected the audit fees [3]. Firth (1985) used the data from the New Zealand audit market to draw conclusions that were basically consistent with Simunic (1980) and Francis (1984) [4]. ...
... Using data from New Zealand listed companies. Firth (1985) also found that the size of an accounting firm does not have a significant impact on audit fees. ...
... Finalmente, si nos centramos en la actividad que realiza la empresa auditada y su posible relación con los honorarios de auditoría, también existen antecedentes en la materia, que destacan que algunos sectores requieren que los auditores lleven a cabo un mayor trabajo y, por lo tanto, se elevan los costes de la auditoría (Firth, 1985;Anderson y Zeghal, 1994), o que simplemente existe una relación entre sector y honorarios de auditoría (Zaman et al., 2011;Hassan y Naser, 2013;Bottaro et al., 2015). Concretamente hay autores, como Naser y Nuseibeh (2008), que demuestran que el sector manufacturero, como requiere de una mayor inversión en capital y, por lo tanto, mayores fuentes de nanciación, conlleva el uso de mayores recursos para realizar la auditoría, y los honorarios se elevan. ...
... Según lo obtenido, en términos medios, sí que existen algunos sectores de actividad que determinan unos honorarios de auditoría más altos o más bajos. Parece lógico que a priori se pueda suponer una relación entre determinadas actividades empresariales y la cuantía de los honorarios jados por el servicio de auditoría, pues las horas que va a conllevar la prestación del servicio vienen determinadas por la actividad de la empresa (Firth, 1985;Anderson y Zeghal, 1994;Vasconcelos et al., 2018). ...
Existe una amplia literatura sobre la relación entre los honorarios de auditoría y otras variables, tanto de la empresa auditada como de la empresa auditora. En este trabajo nos planteamos analizar una muestra de empresas incluidas en dos índices bursátiles de referencia, el Ibex 35 y el Dow Jones, para el año 2016, con el objetivo de determinar si existe una relación entre los honorarios medios de auditoría y el tamaño y el sector de la empresa auditada. Obtenemos que ciertos sectores de actividad de la empresa auditada van a determinar los honorarios medios pagados por su auditoría, y que sea cual sea la medida del tamaño de la empresa auditada, condiciona de forma positiva los honorarios medios que paga a sus auditores. Estos resultados son de interés, tanto para las empresas auditoras como para las auditadas, a la hora de gestionar los términos del contrato de auditoría, así como para el regulador o cualquier posible interviniente en el mercado de auditoría.
... In addition, Pong and Whittington (1994) also found that the total sales are relevant to measure audit fees. The size of auditee has a direct impact on the auditors' work and numerous studies have asserted a positive relationship between audit fees and auditee size (Firth, 1985;Simunic, 1980;Francis, 1984;Low, Tan & Koh, 1990;Chan et al., 1993;Pong & Whittington, 1994;and Gerrard, Houghton & Woodliff, 1994). ...
... The complexity of the auditee also influences the audit fees in that the auditors need longer time and more man power to complete their audits (Firth, 1985;Simunic, 1980;Francis, 1984;Simon, 1985;Low et al., 1990;Chan et al., 1993;Pong & Whittington, 1994;Gerrard et al., 1994;Firth, 1997a;Butterworth & Houghton, 1995;Mohd Atef & Ayoib, 2000). Therefore, just as the auditee size, auditee complexity also bears a positive relationship with the audit fees. ...
The issue of audit fees and non-audit fees charged by the audit firms has been discussed regularly in accounting and auditing literature. Recently, due to the corporate scandals in United States, the issue is discussed together with a host of revelations about audit failures that led to the companies' demise. The auditing profession is being badly blamed and some suggest that this could be due to the audit firm's reliance more on non-audit services rather than the audit itself. Therefore, this study attempts to probe the situation in Malaysia using the banking sector as the subject of interest. Specifically, it tries to examine the impact of non-audit services conducted by audit firms to these banks on audit fees. The results showed that the variable of non-audit fees is statistically significant in determining audit fees as predicted. Further sensitivity analysis showed that the results are robust to different measurements and company size.
... The different industries variable was found to be significant (Firth, 1985). Industry type can be generally categorized into manufacturing, trading, and service. ...
... Prior researchers discussed the association between the audit fees and corporate profitability. Firth (1985) states profitability can be identified by realizing the profit or loss figure presented in the statement of profit and loss. Auditee profitability can be measured in many ways such as the profitability of return on assets (ROA), return on equity (ROE), return on investment (ROI) or return on capital employed (ROCE). ...
... Company size was employed by many previous studies (Taylor and Baker, 1981;Francis, 1984;Firth, 1985;Barber, et al., 1987;Chan et al., 1993;Anderson and Zeghal, 1994;Pong and Whittington, 1994;Johnson et al., 1995;Gregory and Collier, 1996;Ho and Ng., 1996;Iyer and Iyer, 1996;Simon et al., 1996;WaresulKarim and Moizer, 1996;Zhang and Myrteza, 1996;Firth, 1997;Lengendijk, 1997;Mike et al., 1997;Joshi and Al-Bastaki, 2000;Chung and Narasimhan, 2002;Simon and Taylor, 2002;Ezzamel, et al., 2002). Corporate size is considered an important factor in determining the audit fees, (Hay et al., 2006, cited in Kikhia, 2015). ...
... Hence, they tend to embark on many transactions which may result in high-audit fees. Complexity is directly proportional to rigorous audit work hence higher pricing of audit services" (Firth, 1985;Cameran, 2005). ...
... The profitability of the client's business is viewed as a key measure of managerial effectiveness and resource allocation efficiency. The income or loss amount reported in the income statement can be used to determine the auditee profitability (Firth, 1985;Simon et al., 1986;Chung & Lindsay, 1988;Low et al., 1990;Dugar, A. et al, 1995;and Waresul & Moizer, 1996). Return on assets (ROA), return on equity (ROE), return on capital employed (ROCE), and return on investment (ROI) are just a few of the profitability measures that may be used to assess an auditee's profitability (ROI). ...
A significant sum of a company’s expenses is spent on getting the financial statements audited. Widely varying pricing has been seen in this market of Bangladesh. Corporate governance has been attributed to the ownership structure. These two circumstances have necessitated this study which attempts to find out the effects of corporate governance on determination of audit fees from the perspective of family and non-family business. Evidences have been drawn from a sample of 109 publicly listed companies in Bangladesh We explain the moderation effect of corporate governance on family and non-family firm using GMM model. It was found that in complex business structure, addition of board expertise significantly reduces the audit fees paid by the firms. Also, firms that require complex accounting procedures had a significant negative impact on audit fees when board expertise and audit committee independence were ensured. Corporate governance measures like an increase in female director ratio had a negative impact on audit fees in family-owned firms whereas the fee decreased in such non-family firms. Family owned firms increased the audit fee irrespective of employment of new auditor or continuation of current auditor, whereas the fee had a negative impact in non-family firms irrespective of the auditor’s tenure. Our findings have broad implications for audit markets in emerging nations, where the long-term viability of family businesses is critical to overall economic growth.
... Larger clients, generally involving more complex economic activities and accounting practices, require auditors to conduct a wider range of audit procedures involving more audit adjustments, resulting in increased audit fees. The complexity of audit units' operations, such as the measurement of accounts receivable and inventory, significantly positively affects audit charges (Firth, 1985;Francis, 1984;Menon and Williams, 2001). The more complex the operations, the higher the auditors' identification and assessment of significant misreporting risks, and the increased litigation risk from audit failure may lead auditors to choose audit fee premiums to transfer risk (DeFond and Zhang, 2014). ...
This study investigates the impact of China's revised Securities Law (2019) on the audit pricing strategies of A-share listed companies. Using a Difference-in-Differences (DID) approach and a sample of 26,057 firm-year observations from 2016 to 2022, we find that the new law led to a significant increase in audit fees, especially for non-state-owned enterprises and firms in regions with stronger legal institutions. We attribute these effects to the heightened legal liability and regulatory scrutiny faced by auditors under the new regime, which incentivizes them to enhance audit quality and charge higher risk premiums. Our results are robust to a series of sensitivity tests and alternative specifications. We conclude that the revised Securities Law has achieved its intended objectives of improving market transparency and investor protection but at the cost of higher compliance burdens for listed companies. Our findings have important implications for policymakers, regulators, and market participants in China and other emerging economies undergoing similar legal and institutional reforms.
... Due to the significance of this topic in light of the several instances of audit failure experienced by Enron and other organisations, a number of studies have been conducted on the topic of Audit fee decisions. Many authors, including " Taffler and Ramalinggam (1982) and Brinn et al. (1994) in the United Kingdom; Simunic (1980), Simon (1985), Palmrose (1986) in the United States; Francis (1984) in Australia;and Firth (1985) in New Zealand," had conducted numerous studies due to the widespread interest in the topic, as well as the laws, ethical issues, government laws, professional interventions, anticompetition, and financial scandals involving earnings management (Wharton, 2002). ...
The purpose of this study is to assess the determinants of audit fees among consumer goods companies publicly listed on the floor of the Nigerian Exchange Group (NGX). Secondary data of firm size, age and profitability (independent variables), and audit fee (dependent variable) from the chosen consumer goods firms in Nigeria's annual reports and accounts from 2012-2022. “Descriptive statistics (mean, median, standard deviation, skewness, kurtosis, and Karl Pearson correlation); diagnostic statistics (variance inflation factor, Breusch Pagan-Cook test for heteroskedasticity, Ramsey RESET test); and inferential statistics (Chi square test, Fisher's exact test, and t-test) were used to analyse the data;” and principal component analysis) and inferential statistics (ordinary least square). Generally, the results showed that firm size and profitability are the measure determinants of audit fees while firm age do not determines audit fees. It is therefore it was recommended that consumer goods companies need to enhance the size and profitability (return on assets).
... In general, existing research on the factors affecting audit fees can be categorized into two aspects, namely, audit client specifics and auditor specifics. First, with respect to audit clients, earlier studies found that company size, business complexity, financial position, and profitability etc. could affect audit fees [7][8][9]. Auditors generally need to spend more time to complete the audit engagement when the company is larger in size or the company's activities are more complex [10,11], and therefore the audit fee will also be higher; better profitability or financial position typically implies lower risk of the client, thus leading to lower audit fees. In addition, some scholars have also focused on the effects of earnings management, audit committee characteristics, internal control, etc. on audit fees [12][13][14][15], these factors can be categorized as corporate governance. ...
This paper investigates the international accounting network memberships’ impact on audit fees. We find that, firstly, the audit fees charged by the member audit firms are significantly higher; secondly, if the revenue, ranking or audit and accounting business share of the international network the audit firm join is higher, the charge is also higher. Additional results show that economic policy uncertainty will intensify this positive relationship, and member audit firms charge higher fees by improving their overseas expertise. We also find that international network memberships will reduce abnormal audit fees, and improve the quality of financial reports.
... Because profitable firms, being less likely to incur financial distress, have lower audit fees (Simunic and Stein 1996), we expect audit fees to be negatively related to quick ratio and profitability (Simunic 1980). We also expect audit fees to be positively related to receivable and inventory intensity, which reflects audit complexity (Firth 1985;Simunic 1980;Stice 1991). The coefficient for leverage is expected to be positive because greater leverage implies a higher risk of financial distress (Hay, Knechel, and Wong 2006). ...
Audit disclosure requirements have increased across countries in recent years. In this study, we explore a disclosure pattern that has been adopted by approximately 23 percent of Chinese publicly listed companies and their auditors—the disclosure of up to three overlapping items both in the risk factor section of financial reports and in the key audit matters (KAM) section of the audit report. We predict and find that such disclosure overlaps increase auditor liability, using audit fees as a proxy for auditor liability, and that (1) both the magnitude and explicitness of overlapped disclosure are positively associated with auditor liability and (2) analyst following, Top 10 auditors, and auditor tenure play a moderating role in the association between overlapped disclosures and auditors’ perceived liability. Collectively, our analysis supports our hypothesis that KAM disclosure increases auditor liability when coupled with management disclosure of related risk factors.
Data Availability: Data are available from the sources cited in the text.
JEL Classifications: M41; M42; K41.
... Palmrose (1986a) Survey 1980-1981 Firm size and fees Big 8 associated with higher audit fees than non-Big 8 auditors, suggesting that the Big 8 designation reflects higher quality. Francis & Simon (1987) Survey 1984-1985 Firm size and fees Big 8 firms earn a fee premium, which suggests product differentiation. They also discount fees during initial engagements. ...
Purpose – With Sarbanes–Oxley Act of 2002 (SOX), the self-regulation of the auditing profession was replaced
with standard setting and oversight by the government. The authors focus on the audit fees literature to
examine how this change impacted research trends over time and shaped different aspects of audits.
Design/methodology/approach – The authors utilized bibliometric and content analysis to identify
research themes pre- and post-SOX.
Findings – The change in regulation contributed to an increased focus on clients and continued interest in
engagement characteristics as added requirements emphasized the client’s governance structure, the auditor’s
tenure and the type of services provided.
Originality/value – The prominent issue that emerged is how deficiencies in the audit processes and in the
client’s internal controls are translated into audit fees. The authors discuss regulatory initiatives pursued in
other jurisdictions, including mandatory rotation of firms, joint audits and further limitations on non-audit
services, as intended and unintended consequences of these requirements warrant further examination
... In the early stages, audit fee research has been primarily focused on individual audit markets of English speaking countries, particularly the United States (e.g., Francis & Simon, 1987;Gist, 1992;Palmrose, 1989;Simunic, 1980), Australia (e.g., Craswell & Francis, 1999;Francis, 1984;Gerrard et al., 1994) or the United Kingdom (e.g., Beattie et al., 2001;Brinn et al., 1994;Chan et al., 1993). In the next wave, audit fee studies were conducted in countries such as Canada (e.g., Anderson & Zéghal, 1994), Finland (Niemi, 2002), New Zealand (Firth, 1985) or Hong Kong (DeFond et al., 2000) as well as for developing countries like South Africa (Simon, 1995) or India (Simon et al., 1986). The majority of these studies investigate auditor and auditee attributes as determinants of audit fees. ...
... Empirical evidence in several countries and Palmrose (1986) in the US; Low et al (1990) in Singapore ; Can et al (1993) ; Pong and Whithington (1994) in the UK; Firth (1985) in New Zealand and Semiu (2010), Olayinka (2010), Osazuwa and Izedonmi (2012), found a positive association between firm size and audit fees. According to Sophie (2008), big companies are assured to perform a higher number of transactions and therefore need a higher quality of audit works and that firm size is thus presumed to have a positive influence on the quality of audit work and amount of audit fees. ...
The research assessed the effect of quality food and service on customers' patronage of hotels and the relationship between quality food service and customers' satisfaction.
... Under this circumstance, auditors are expected to perform more tasks that will require an all-inclusive audit necessitating higher audit fees from such complex clients. In support of the notion that auditors need more time and manpower to conduct the statutory audit of complex firms, empirical documentations (Simunic, 1980;Firth, 1985;Low, Tan & Koh, 1990;Chan, Ezammel & Gwilliam, 1993;Butterworth & Houghton, 1995;Carson et al, 2004;Knechel & Salterio, 2017) revealed a significant and positive relationship between the level of the client complexity and the audit fee (either a normal audit fee or an abnormal audit fee). ...
This study essentially examines the audit effort as a possible determinant of the abnormal audit fees evinced in International Financial Reporting Standards-based financial statements. Therefore, the secondary data were sourced from the audited annual reports and the relevant financial statements of the Nigerian listed banks for the period of observation (2010-2019). An analysis was performed using the relevant techniques that include descriptive statistics, the correlation matrix and panel regression.
The findings showed that the IFRS, the client complexity (CPX) and the client size (SIZ) were negatively correlated with abnormal audit fees (ABFEE), whereas joint audit (JAD) recorded a positive correlation with such abnormal audit fees. Lucidly, joint audit showed a stronger relationship with abnormal audit fees, whereas the client size showed a significant, but negative relationship with abnormal audit fees.
Similarly, the fact that, with a probability value 0.9494, the relationship between ABFEE and the client complexity was not significant was noticed. Given these research outcomes, it can be concluded that abnormal audit fees are primarily motivated by extra or unexplained audit efforts and the costs associated with them. It is, therefore, recommended that, proportionately with the service(s) rendered, accounting professional bodies should review, harmonize and tactically institute a limit for professional charges through the enforcement of regulated benchmarks for audit fees payable by clients.
... It is also argued that firm size (SIZE) can influence financial reporting timeliness. Firth (1985), for instance, stated that the auditors of large companies can achieve their audit work early. This is because large companies have enough resources and are expected to hire more audit fees to higher-quality auditors to receive quality audit work conducted in a timely manner. ...
This study aims to examine the relationship between Royal family members on the board of directors and financial reporting timeliness among listed companies in the United Arab Emirates (UAE). UAE has two markets, namely Abu Dhabi Exchange Security (ADX) and Dubai Financial Market (DFM). The data of the current study were collected from these two markets listed companies for the periods of 2011 to 2018 which resulted in 437 firm-year sample data. The results of this study showed that the existence of royal family members on the board of the UAE listed companies is significantly associated with financial reporting timeliness. This study provides evidence on the role played by the elite groups (Royal Family members) in UAE in enhancing the role of the board of directors. The findings also reported that board independence, audit committee size, audit committee expert, and firm profitability are significantly associated with financial reporting timeliness. The findings of this study contribute to the existing theory and empirical evidence of how the existence of Royal family members on the board of directors adds values to the company and improves its financial reporting quality.
... The accounting firms thus achieve the objective that will earn an audit premium for them in the years that follow. Firth (1985) added a variable, 'β', to the audit fees model in order to measure the risk. The analyses showed that there is a significantly positive correlation between audit fees and the dimensions of the audited companies, unsystematic risk and the ratio of the average balance of accounts' receivables and total assets. ...
... It is also argued that firm size (SIZE) can influence financial reporting timeliness. Firth (1985), for instance, stated that the auditors of large companies can achieve their audit work early. This is because large companies have enough resources and are expected to hire more audit fees to higher-quality auditors to receive quality audit work conducted in a timely manner. ...
This study aims to examine the association between Royal family members on the board of directors and financial reporting quality in the United Arab Emirates (UAE). UAE has two markets, namely Abu Dhabi Exchange Security (ADX) and Dubai Financial Market (DFM). The data of the current study were collected from these two markets listed companies for the periods of 2011 to 2018 which resulted in 437 observations. The results of this study showed that the existence of royal family members on the board of the UAE listed companies is significantly associated with financial reporting timeliness. This study provides evidence on the role played by the elite groups (Royal Family members) in UAE in enhancing the role of the board of directors. The findings also reported that board independence, audit committee size, audit committee expert, and firm profitability are significantly associated with financial reporting timeliness. The findings of this study contribute to the existing theory and empirical evidence of how the existence of Royal family members on the board of directors adds values to the company and improves its financial reporting quality.
... The accounting firms thus achieve the objective that will earn an audit premium for them in the years that follow. Firth (1985) added a variable, 'β', to the audit fees model in order to measure the risk. The analyses showed that there is a significantly positive correlation between audit fees and the dimensions of the audited companies, unsystematic risk and the ratio of the average balance of accounts' receivables and total assets. ...
... In the early stages, audit fee research has been primarily focused on individual audit markets of English speaking countries, particularly the United States (e.g., Francis & Simon, 1987;Gist, 1992;Palmrose, 1989;Simunic, 1980), Australia (e.g., Craswell & Francis, 1999;Francis, 1984;Gerrard et al., 1994) or the United Kingdom (e.g., Beattie et al., 2001;Brinn et al., 1994;Chan et al., 1993). In the next wave, audit fee studies were conducted in countries such as Canada (e.g., Anderson & Zéghal, 1994), Finland (Niemi, 2002), New Zealand (Firth, 1985) or Hong Kong (DeFond et al., 2000) as well as for developing countries like South Africa (Simon, 1995) or India (Simon et al., 1986). The majority of these studies investigate auditor and auditee attributes as determinants of audit fees. ...
... In the early stages, audit fee research has been primarily focused on individual audit markets of English speaking countries, particularly the United States (e.g., Francis & Simon, 1987;Gist, 1992;Palmrose, 1989;Simunic, 1980), Australia (e.g., Craswell & Francis, 1999;Francis, 1984;Gerrard et al., 1994) or the United Kingdom (e.g., Beattie et al., 2001;Brinn et al., 1994;Chan et al., 1993). In the next wave, audit fee studies were conducted in countries such as Canada (e.g., Anderson & Zéghal, 1994), Finland (Niemi, 2002), New Zealand (Firth, 1985) or Hong Kong (DeFond et al., 2000) as well as for developing countries like South Africa (Simon, 1995) or India (Simon et al., 1986). The majority of these studies investigate auditor and auditee attributes as determinants of audit fees. ...
In recent years, we have seen an increasing interest in the country‐level differences in audit environments as they might have a pervasive impact on how financial statement audits are conducted around the world. We contribute to this emerging stream of research in three important ways. Firstly, we provide a comprehensive synthesis of country‐level determinants that have been employed in previous multinational auditing research. Secondly, we document economically significant differences in the overall levels of audit pricing between countries, which we interpret as a compelling evidence that audits are conducted differently in different countries. Lastly, we explain these pricing differences between countries with a large set of country variables identified in our synthesis of prior multinational auditing research. We find not only that economic and regulatory characteristics explain the most of the differences in audit pricing between countries but also that differences attributable to sociological characteristics seem to be important in the conduct of audits. As auditing as a service and profession has become increasingly globalized, our study should be of interest to a wide range of readers including researchers, practitioners and regulators.
... One other commonly considered factors in the determinants of audit fees is the profitability of auditee. This factor is studied in prior literature by several researchers, such as, Firth, 1985;Joshi and AL-Bastaki (2000); El-Gammal (2012); Kikhia (2014). Auditee profitability are likely to be measured by many ratios such as Net Profit Margin, Earnings Before Interest After Taxes (EBIAT), return on investment (ROI), return on equity (ROE), return on assets (ROA), return on capital employed (ROCE), and several more measures. ...
This paper examines the factors influencing the determinants of audit fees in the Kurdistan region/ Iraq. The major purpose is to develop a plausible proxy that can be beneficial in practical work. In order to do this, prior related literature will be studied before the possible associated factors are analyzed and assessed. Furthermore, research questionnaire is distributed among experienced auditors, accountants and financial officers of client firms, and academics in the field. The hypotheses of this paper aim to investigate the significance of three major groups of factors that might considerably influence audit fees; audited firm attributes, auditor attributes, and market attributes. The results show that all three proposed categories of factors are significant and might be taken into consideration when audit fees are determined.
... However, the significant results all date back to the 1980s (with one exception: a study of companies in Ireland in the 1990s), and more recent studies have not shown a significant premium for any firm. One significant Price Waterhouse premium was found in an unusual setting (New Zealand) at a time when the other Big 8 firms could not use their international names (Firth 1985). 12. Considering only high-quality journals yields a different result, though with a significant positive relationship and a file drawer statistic of 35. ...
... For this result, some scholars think that it is due to the difference between companies and subsidiaries in each research market, which has independence and complexity, and the number of subsidiaries can't completely replace the complexity of enterprises. Therefore, the mainstream research still believes that there is a positive correlation between the size and complexity of the audited units and the audit fees (Firth, 1985;Low, Tan, & Koh, 1990). ...
... Big firms (on the auditee side) requires more time and effort to perform the audit procedures than smaller firms and as a result audit fees increase (Rick et al., 2005;Joshi and Bastaki, 2000;Gonthier-Besacier & Schatt, 2007;Ahmed & Goyal, 2005;Brinn, et al., 1994). The other important factor is client profitability (Firth, 1985 andDugar, Ramanan andSimon, 1995) that research shows that companies reporting higher profits or stock returns will be under the suzerainty of extensive audit testing of their revenue/expense generating processes and this may increase audit fees (Joshi and Bastaki, 2000). However, some studies report negative association between client size and audit fee as they moot that the substantial internal control systems of larger firms incredibly decrease audit related costs. ...
This study examines the effects of auditor characteristics on audit fee in Turkey. Data used in this study are mainly collected from the annual reports and transparency reports published by the client and auditor companies for the period between 2013-2018. All the client companies in the sample are listed in Borsa Istanbul. The findings pointed to a significant and positive association between audit fees and international linkage of auditor firm. Besides, a significant and negative relationship has been detected between audit fees and audit tenure. From these findings forth, it can be concluded that some audit firm characteristics have significant effect on audit fees.
... Observations with missing data on audit fees (54) and observations with missing values on control variables (210) are also excluded. Finally, firm-years audited by non-Big 4 auditors (72) are excluded, since the affiliation of an audit firm to Big 4 has been shown to significantly affect audit fees (e.g., Francis, 1984;Crasswell et al., 1995;Ferguson, 2003) due to a larger product differentiation (Chan et al.,1993) and more highly competent employees as a result of greater investment in their professional development (Firth, 1985). The final sample consists of 225 unique firms (1,461 firm-years). ...
This study examines whether partner special competencies, such as industry expertise, public company expertise and client-specific expertise, are associated with a fee premium. It further investigates whether the association between partner competencies and audit fees is dependent on gender. Using a sample of 225 public Swedish companies audited from 2006-2015 (1461 firm-years) by 182 (33 females and 149 males) partners affiliated to Big 4 audit firms, partner industry expertise and client-specific expertise are found to be associated with higher audit fees. A further finding is that partners with special competencies are predominantly men. However, male public company specialists receive significantly lower audit fees than their female counterparts. Taken together, the results indicate that partner special competence is valued by clients.
... Some parts of the audit may have higher inherent risk of being misstated and therefore require longer audit hours (Simunic, 1980) which may rise depending on the industry being audited. Therefore, we control for industry type (such as highly regulated or litigated industry) as there are industries where it is more difficult to audit than others (Firth, 1985;Simunic, 1980;Stice, 1991;Newton and Ashton, 1989;Turpen, 1990;Carcello et al., 2002;Geiger and Rama, 2003;Hay et al., 2006). Additionally, for audit engagement attributes, we control for whether a going-concern opinion has been issued for the firm in a given year. ...
... Some parts of the audit may have higher inherent risk of being misstated and therefore require longer audit hours (Simunic, 1980) which may rise depending on the industry being audited. Therefore, we control for industry type (such as highly regulated or litigated industry) as there are industries where it is more difficult to audit than others (Firth, 1985;Simunic, 1980;Stice, 1991;Newton and Ashton, 1989;Turpen, 1990;Carcello et al., 2002;Geiger and Rama, 2003;Hay et al., 2006). Additionally, for audit engagement attributes, we control for whether a going-concern opinion has been issued for the firm in a given year. ...
Regulators have been particularly concerned with the increased frequency of auditors deficiencies related to material misstatement as reported in the 2017 (Public Company Accounting Oversight Board) PCAOB Inspection brief. This research examines the relationship between auditors risk of failing to capture material misstatement and the clients social responsibility concerns. The findings indicate that clients with social performance concerns (human rights, environment, and governance) were associated with higher auditors risk assessment, as indicated by higher audit fees. The results are consistent after controlling for various auditor and client variables. Implications of this study support the importance of incorporating social performance of clients in the auditors evaluation since it can provide key insights into the clients underlying risk of future litigations which can arise due to socially irresponsive behaviors. In doing so, we seek to come closer to an accurate client assessment as well as respond to the call of PCAOB for minimizing the deficiencies of the auditing process particular in the area of material misstatement.
This study examines whether comment letters have spillover effects on audit fees. By examining listed companies in China, we find that the frequency of comment letters received by peer firms is positively associated with focal firms' audit fees. The spillover effect is stronger when companies have the same audit firm as their peers and the comment letter is longer, asks more questions, is more negative, or contains more risk information. Furthermore, the effect is more pronounced (weaker) for companies with higher growth (audited by Big Four audit firms). Our findings suggest that comment letters have regulatory effectiveness, which influences companies' and auditors' behavior on a large scale.
This study examined the determinants of audit fee by listed manufacturing companies in Nigeria. Theories that relate to this study were reviewed which are Agency theory and Audit Pricing theory. The study adopts correlation research design to examine the relationship between audit fee determinants and audit fee with the adaptation of five variables which are client size, client complexity, audit firm size, audit tenure and profitability. Data were obtained from 30 manufacturing firms out of a population of 48 that were listed on the Nigeria Exchange Group from 2018-2022. Secondary data collection method was employed in this study to obtained data from annual report within the study period. The data were analyzed using linear regression and correlation analysis. Findings of the study indicated that client size was a determinant of audit fee while client complexity, audit firm size, audit tenure and profitability were not determinants of audit fee. It was also found that significant differenced exist between the examination of audit fee using multiple regression analysis and linear regression analysis. This study instructively proposed that assurance clients should devise an outline of guidelines and practices to guide activities in the manufacturing sector by monitoring the variables that impact audit fees.
Our study finds that relative to firms managed by local CEOs, firms managed by CEOs who have returned from overseas (returnee CEOs) exhibit significantly higher audit fees. We also find this positive association to be stronger for returnee CEOs who manage firms with greater agency problems, have overseas experience in countries with better developed institutions, or have greater business knowledge. Further analyses indicate that firms managed by returnee CEOs tend to exhibit better financial reporting quality, lower propensities for financial fraud, and fewer earnings restatements in subsequent years. In addition, firms managed by returnee CEOs are associated with greater internationalization and higher propensities for seasoned equity offerings (SEOs) than firms managed by local CEOs. Overall, our findings are most consistent with the conjecture that returnees tend to bring ethics and practices that ensure higher financial reporting quality back to their home countries. Our findings offer a plausible explanation that returnee talents could increase firm value.
Board members with multiple directorships develop reputational capital as decision experts. Prior studies based on public firms suggest that such directors would use higher quality auditors to improve the quality of financial reporting and, thereby, protect their reputational capital. This study is the first large-scale study that investigates whether multiple directorships influence auditor choice in the setting of private firms. The result indicates a significant positive association between the proportion of board members with outside directorships and audit quality. Furthermore, it shows that the propensity to hire a higher quality auditor is significantly influenced by directors’ network. Finally, the results indicate that the incentives to invest in higher quality auditors are largely influenced by the size of the companies in which board members have their outside directorships.
The paper aims to analyse the role of asset impairment and biological assets in the company’s audit and to estimate the impact of asset impairment losses and biological asset scale on audit fees. The object of the investigation was A-share listed companies from 2012 to 2021 in China. The study analysed 370 listed companies to obtain 28741 observations, of which 367 listed companies had 1854 observations with biological assets. The study applied the fixed effect model, three-step mediation test, Sobel mediation test and PSM matching test. The results show that asset impairment loss and biological asset size are significantly positively correlated with audit fees, and the scale of biological assets will strengthen the positive correlation between asset impairment loss and audit fees. It is further found that asset impairment and biological assets positively affect audit fees through two parallel intermediary paths of "audit working hours" and "violations". Finally, based on the above findings, this paper also attempts to make optimisation recommendations for the four relevant stakeholders involved in the audit. This paper contributes to improving accounting standards for biological assets and enriching the research on audit pricing based on the empirical justifications of their role in the company’s audit.
This study aimed to investigate the influence of managerial ownership and quality eksternal auditor on firm value. Firm value in this study is proxied by Tobin'S Q. The sample was selected from manufacture companies were listed on Indonesia Stock Exchange in 2005 until 2009 using a Quota Random sampling method. The method of analysis of this study used linear regression. The Result of this study show both ownership managerial auditor and quality auditor eksternl have an effect on to firm value. Ownership managerial have an effect on negative and significant. Quality auditor eksternal have an effect on positive and significant.
Maximizing enterprise value is considered as the primary purpose of financial flexibility. The financial flexibility of the audited entity affects the audit fees by affecting the business risk of the enterprise. In this research, the data of Chinese listed companies in Shanghai and Shenzhen stock exchanges from 2003 to 2020 have been adopted to empirically analyze that the higher the level of financial flexibility of a firm would lower its audit fees. We investigate whether financial flexibility reduces business risk by enhancing the ability of enterprises to manage resources flexibly in the face of uncertainty. The results show that the financial flexibility of the audited entity is negatively correlated with the audit fees. This research not only enriches the related literature on economic consequences of financial flexibility and the influencing factors of audit fees, but also contributes positively to improving the awareness of financial flexibility and the efficiency of financial resource allocation in enterprises. It is also of reference value for the improvement of the current audit fee system.KeywordsFinancial flexibilityAudit feeBusiness risk
Due to the lack of professional knowledge, auditing innovation quality has always been a big problem for auditors. Patent citation is a new and informative signal. We hope this signal can help auditors reduce the lack of professional knowledge and reduce the audit input of innovation quality. By examining Chinese non-financial firms between 2011 and 2019, we use patent citation as the proxy of patent quality and find that firms with higher patent quality have lower audit input at the same level of R&D expenditure. Further tests show that the signaling effect of patent quality is limited. Patent quality signals will work when the audited firm is a high-tech enterprise, or when the Key Audit Matters (KAMs) involve items such as R&D expenditures. But the auditor industry specialization can replace the influence of patent quality. Our results imply that auditors can use patent quality as a signal to reduce the difficulty of obtaining information and risk evaluation. Firms should focus on the quality of patents and display their innovation capabilities through the intellectual property (IP) market. China should strengthen the protection of private rights and continuously enhance the supporting mechanism of IP market.
Audit fees and audit quality have received the attention of stakeholders, clients, audit firms, and third parties. Each subject has its own opinion on determining influencing factors and their relationship. This study aims to investigate the determining factors of audit fees and audit quality in Vietnam. Using random data collection, a questionnaire was created on Google forms and sent to auditors from the 4th quarter of 2020 to the end of the 1st quarter of 2021. 267 valid auditors' responses in 28 audit firms were used for data analysis. Exploratory factor analysis (EFA) was used to determine relationships between observed variables and factors. The measurement model and recommended hypotheses were confirmed by structural equation modeling (SEM) using SPSS 26 and AMOS 26. The study results show that contract types and audit complexity, audit firms' reputation, size, and risk significantly impact audit fees and audit quality. In addition, the specialization of the audit firms does not have a positive effect on audit quality but on audit fees. The audit tenure has no statistical impact on audit fees and audit quality. Notably, audit fees statistically affected audit quality. Several implications can be applied, such as increasing the firm size, performing the procedures in response to audit risk, separating audit contract types, and determining the complexity of audit projects and specialties.
Bu çalışma BIST (Borsa İstanbul) 100’de işlem gören işletmeler bazında bağımsız denetim ücretlerini etkileyen faktörleri ortaya koymayı amaçlamaktadır. 2013-2018 dönemine ait finansal verileri incelenen 98 şirket ve bu şirketleri denetleyen denetim firmalarının şeffaflık raporları kullanılarak bağımsız denetim ücretlerini etkileyebilecek faktörler, denetlenen firmaya ve denetçi firmaya ait özellikler ile türev araç kullanımı çerçevesinde incelenmiştir. Denetlenen işletme özellikleri değerlendirildiğinde firma büyüklüğü ile denetim ücretleri arasında anlamlı pozitif ilişki raporlanmıştır. Denetim firması özellikleri kapsamında ise denetçi görüşü ile denetim firması ile çalışılan sürenin denetim ücretleri üzerinde anlamlı etkisi ön plana çıkmaktadır. Bu sonuçlara ek olarak, türev araç tutarı ve kapsamlı gelir ile denetim gelirleri arasında ise anlamlı pozitif ilişki raporlanmıştır.
Trotz der immensen ökonomischen Bedeutung von Versicherungen für marktwirtschaftlich orientierte Volkswirtschaften haben sich bis dato nur wenige nationale und internationale Forschungsarbeiten dem Abschlussprüfermarkt für Versicherungsunternehmen gewidmet. Die vorliegende Arbeit hat sich dieser Thematik angenommen und liefert empirische Resultate bezüglich des Abschlussprüfermarktes für Versicherungsunternehmen in Deutschland. Neben einer detaillierten Strukturanalyse steht hierbei die Frage im Fokus, ob testierende Prüfungspartner, welche in Bezug auf die deutsche Versicherungsbranche einen hohen Spezialisierungsgrad aufweisen, die Höhe des erhobenen Prüfungshonorars beeinflussen. Dabei wird auch der Tatsache Rechnung getragen, dass in Deutschland gewöhnlich zwei Wirtschaftsprüfer (Links- und Rechtsunterzeichner) mit unterschiedlichen Aufgaben- und Verantwortungsbereichen den Jahres- bzw. den Konzernabschluss testieren. Die Resultate liefern Evidenz dafür, dass insbesondere Rechtsunterzeichner, denen entweder aufgrund ihres verhältnismäßig hohen Marktanteils bei Abschlussprüfungen in der Versicherungsbranche oder aufgrund ihrer Mitgliedschaft im IDW-Versicherungsfachausschuss ein hoher Spezialisierungsgrad zugesprochen wird, ökonomisch relevante Honoraraufschläge erzielen können.
External auditing is a key component of a well-functioning capital markets. This is based on the assertion that companies with a reputation for credible financial reporting are likely to change auditors when their audit quality is questioned to avoid capital market consequences of unreliable financial reporting. This study empirically ascertained the relationship between audit quality attributes and financial reporting quality of listed consumer goods companies in Nigeria. The study adopted a correlational research design and adopted 12 out of the entire population of 17 quoted companies in the industrial goods sector using purposive sampling technique to determine sample size. The result of the panel regression with the aid of STATA indicated that audit firm size has a negative significant relationship, auditor tenure has a positive insignificant relationship while audit fees has a negative insignificant relationship with financial reporting quality of quoted industrial goods companies in Nigeria. The study recommended that consumer goods companies should not rely on audit fees paid to auditors as a guarantee of qualitative financial reporting since audit fees contributes negatively and insignificantly to financial reporting quality. Consumer goods companies should not emphasis on elongated tenure of auditors and should reasonably consider the size of audit firms before engaging them.
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