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Audit Fees (audit + fee)

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Business, Economics, Finance and Accounting	100%

Terms modified by Audit Fees

audit fee premium

Selected Abstracts

Discretionary Accounting Accruals, Managers' Incentives, and Audit Fees,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 3 2003
Ferdinand A. Gul
Abstract This paper examines the linkages between discretionary accruals (DAs), managerial share ownership, management compensation, and audit fees. It draws on the theory that managers of firms with high management ownership are likely to use DAs to communicate value-relevant information, while managers of firms with high accounting-based compensation are likely to use DAs opportunistically to manage earnings to improve their compensation. OLS regression results of 648 Australian firms show that (1) there is a positive association between DAs and audit fees; (2) managerial ownership negatively affects the positive relationship between DAs and audit fees; and (3) this negative impact is further found to be weaker for firms with high accounting-based management compensation. [source]

Board Characteristics and Audit Fees,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 3 2002
Joseph V. Carcello
Abstract This paper examines the relations between three board characteristics (independence, diligence, and expertise) and Big 6 audit fees for Fortune 1000 companies. To protect its reputation capital, avoid legal liability, and promote shareholder interests, a more independent, diligent, and expert board may demand differentially higher audit quality (greater assurance, which requires more audit work) than the Big 6 audit firms normally provide. The audit fee increases as the auditor's additional costs are passed on to the client, such that we expect positive relations between audit fees and the board characteristics examined. We find significant positive relations between audit fees and board independence, diligence, and expertise. The results persist when similar measures of audit committee "quality" are included in the model. The results add to the growing body of literature documenting relations between corporate governance mechanisms and various facets of the financial reporting and audit processes, as well as to our understanding of the determinants of audit fees. [source]

The Impact of the Sarbanes-Oxley Act on the Audit Fees of Australian Listed Firms

INTERNATIONAL JOURNAL OF AUDITING, Issue 2 2009
Fazlina Mohd Salman
The Sarbanes-Oxley Act (2002) (SOX) was enacted to improve the corporate governance practices of US firms. Significantly, foreign registrants traded on US stock exchanges are also required to comply with SOX. This study assesses the impact of the SOX legislation on non-US firms by examining audit fees for Australian firms with foreign registrant status in the US from 2001 to 2005, compared with audit fees for other Australian firms. The findings indicate that Australian companies issuing American Depositary Receipts (ADRs) incurred substantial increases in audit fees and Australian firms subject to the full provisions of SOX incurred larger increases in audit fees. These findings provide a broader understanding of the compliance costs for non-US firms subject to SOX and therefore inform both policy-makers and firms. [source]

Evidence on the Impact of Internal Control and Corporate Governance on Audit Fees

INTERNATIONAL JOURNAL OF AUDITING, Issue 1 2008
David Hay
Previous studies generally suggest that internal control and external auditing can substitute for each other, so that better internal control will be associated with lower audit fees. However, their empirical results do not support this view. In contrast, previous studies of the interaction between corporate governance and external audit services often assume that they are complementary, and that improved governance is associated with higher audit fees, although the evidence about this issue is also mixed. We examine whether the ,substitution' or ,complementary controls' views apply. We find that measures of internal auditing, corporate governance, and concentration of ownership are all positively related to audit fees, consistent with the explanation that controls are complementary. The study makes a contribution by assisting regulators in understanding the effects of regulation of corporate governance, and by showing auditors and auditing standard setters that the view that internal controls can substitute for external auditing may not be helpful. We also find that these relationships hold only in a relatively less-regulated environment. [source]

The Relationship between Categories of Non-Audit Services and Audit Fees: Evidence from UK Companies

INTERNATIONAL JOURNAL OF AUDITING, Issue 1 2002
M. Ezzamel
Using survey data we examine the relationship between various categories of non-audit services and audit fees. Compared to previous research, we use a more refined classification of non-audit services both for incumbent and non-incumbent auditors, and control for the existence of an internal audit function and basis of disclosure. Our results suggest that the relationship between levels of audit fees and non-audit services varies by category of non-audit service. These results support explanations of the positive association between fees paid for non-audit services and audit fees in terms either of client specific differences, e.g. organisational complexity, or of events giving rise to the purchase of more audit and non-audit services rather than in terms of direct economic linkages between the cost functions for audit and non-audit services. We speculate that the presence of another auditing firm at the client in a consulting capacity may exert competitive pressure on the fee for external audit. [source]

Auditors' Perceived Business Risk and Audit Fees: Analysis and Evidence

JOURNAL OF ACCOUNTING RESEARCH, Issue 1 2001
Timothy B. Bell
This study analyzes the relation between auditors' perceived business risk and audit fees to determine whether audit firms or their clients bear the expected legal costs of business risk. We predict that hourly audit fees and the number of audit hours are increasing in business risk. Using confidential survey data collected by a large international accounting firm for 422 audits, we find that high business risk increases the number of audit hours, but not the fee per hour. This implies that firms perceive firm-level differences in business risk and obtain compensation through billing additional hours, not by raising the hourly charge. [source]

Auditor's Engagement Risk and Audit Fees: The Role of Audit Firm Alumni

JOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 9-10 2007
Ilias G. Basioudis
Abstract:, This study explores the effect of the association of audit firm alumni with their alma mater on audit prices. The tests indicate that there is a moderate reduction of up to 21% in the level of audit fee when alumni (i.e., former employees) of the incumbent audit firm sit on the client board of directors which is consistent with the engagement risk theory. This suggests that there is an ,alumni effect' in the market for audit services. The findings hold only in the large company segment of the market. The results are robust to different model specifications and alternative samples. The sample comprises all executive and non-executive directors who run the UK quoted companies and are simultaneously ICAEW qualified chartered accountants. The study's implications for the accounting profession and the regulators are also discussed. [source]

Auditor,Provided Consultancy Services and their Associations with Audit Fees and Audit Opinions

JOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 5-6 2002
Michael Firth
This study examines the relationships between non,audit services fees (consultancy fees) paid to auditors and (1) audit fees, and (2) the occurrence of qualified audit opinions. The positive association between consultancy fees and audit fees is shown to be due to certain company specific events that generate a demand for consultancy services as well as requiring additional audit effort. Identified company specific events are mergers and acquisitions, new share issues, new accounting and information systems, new CEOs, and corporate restructurings. When these events are absent, there is no statistically significant relationship between audit fees and consultancy fees after controlling for company size. Companies that have relatively high consultancy fees are more likely to receive a clean audit opinion. This may be due to the non,audit work clearing up problem areas at the client company or it may be due to high consultancy fees impairing auditor independence. With the available data it is not possible to distinguish between these two reasons. [source]

The Role of Risk Management and Governance in Determining Audit Demand

JOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 9-10 2006
W. Robert Knechel
Abstract:, Most prior research into audit fees has been based on a theoretical model which treats audit fees as the by-product of a production function ignoring potential demand forces that may drive the level of the audit fee. Inspired by prior ,anomalous' results, we take a different perspective by focusing on demand factors that may affect the level of the audit fee. Using data collected from a sample of listed companies in Belgium, we consider both disclosures about risk and risk management and actual decisions about corporate governance to examine whether audit fees are higher when these demand forces exist. In general, we expect that external auditing will increase in situations where there are multiple stakeholders with individual risk profiles who can shift some of the cost of monitoring to other stakeholders. Consistent with our theory and expectations, our results indicate that audit fees are higher when a company has an audit committee, discloses a relatively high level of financial risk management, and has a larger proportion of independent Board Members. Audit fees are lower when a company discloses a relatively high level of compliance risk management. The latter result indicates that controls are only complementary as long as they are voluntary, as mandated controls act as substitutes for non-mandated controls. [source]

Sarbanes Oxley Section 404 Costs of Compliance: a case study

CORPORATE GOVERNANCE, Issue 2 2007
Lineke Sneller
In 2002 US Congress approved the Sarbanes Oxley Act (SOX). Section 404 requires companies to assess their internal controls and acquire an attestation of this assessment from their external auditor. In this paper, we investigate the costs of compliance of this assessment and attestation. The European division of a US listed company is used as a case study. The divisional project approach is described, and costs of compliance for this division are presented in two categories: assessment costs, mainly hours spent by internal staff; and attestation costs, mainly audit fees. The case study shows that the internal hours spent on assessment are approximately 12 times higher than the initial estimate made by the SEC in 2002, and that the realised other expenses are approximately 1.4 times higher than this estimate. Furthermore, a year on year increase of 50 per cent of the company's audit fee in the first year of Section 404 compliance is found. Companies can reduce the costs of compliance by implementing programmed controls, using auditors from countries with lower rates, remediating material weaknesses only, focusing on the internal control system rather than on individual controls, and by encouraging the auditor to rely on the company's assessment. [source]

An Empirical Investigation of Price Competition and Industry Specialisation in NHS Audit Services

FINANCIAL ACCOUNTABILITY & MANAGEMENT, Issue 2 2005
Ilias G. Basioudis
The NHS audit market is regulated by the Audit Commission (AC) and has unique features. We develop a model for audit fees that includes rigorous analysis of the type of auditor. Poor financial standing does not give rise to higher audit fees. Despite regulation the study supports the existence of a Big Five price premium on the audit fee, but only one firm has a premium. We found no premium due to industry specialisation. The removal of performance audit from AC regulation will require improved audit fee reporting and control. [source]

Do External Auditors Perform a Corporate Governance Role in Emerging Markets?

JOURNAL OF ACCOUNTING RESEARCH, Issue 1 2005
Evidence from East Asia
ABSTRACT In emerging markets, the agency conflicts between controlling owners and the minority shareholders are difficult to mitigate through conventional corporate control mechanisms such as boards of directors and takeovers. We examine whether external independent auditors are employed as monitors or as bonding mechanisms, or both, to alleviate the agency problems. Using a broad sample from eight East Asian economies, we document that firms with agency problems embedded in the ownership structures are more likely to employ Big 5 auditors. This relation is evident among firms that raise equity capital frequently. Consistently, firms hiring Big 5 auditors receive smaller share price discounts associated with the agency conflicts. Also, we find that Big 5 auditors take into consideration their clients' agency problems when making audit fee and audit report decisions. Taken together, these results suggest that Big 5 auditors do have a corporate governance role in emerging markets. [source]

Auditor's Engagement Risk and Audit Fees: The Role of Audit Firm Alumni

The Role of Risk Management and Governance in Determining Audit Demand

Discretionary Accounting Accruals, Managers' Incentives, and Audit Fees,

Board Characteristics and Audit Fees,

Competition and Big 6 Brand Name Reputation: Evidence from the Ontario Municipal Audit Market,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 1 2001
SATI P. BANDYOPADHYAY
Abstract The 1991 amendment to the auditor appointment requirement of section 86 of the Ontario Municipal Act removes certain barriers to entry into the Ontario municipal audit market. The purpose of this study is to provide evidence that the amendment has enhanced competition in this market. The results indicate that there is a general reduction in the real municipal audit fees compared with the pre-amendment levels, and that the market has become more contestable following the amendment. Notwithstanding the heightened competition, the Big 6 audit firms continue to command audit fee premiums over the non-Big 6 audit firms. This suggests that Big 6 audit fee premiums possibly reflect brand name reputation rather than monopoly/oligopoly rents. [source]

An Empirical Investigation of Price Competition and Industry Specialisation in NHS Audit Services

Agency problems and audit fees: further tests of the free cash flow hypothesis

ACCOUNTING & FINANCE, Issue 2 2010
Paul A. Griffin
G34; G35; M41; M42 Abstract This study finds that the agency problems of companies with high free cash flow (FCF) and low growth opportunities induce auditors of companies in the US to raise audit fees to compensate for the additional effort. We also find that high FCF companies with high growth prospects have higher audit fees. In both cases, higher debt levels moderate the increased fees, consistent with the role of debt as a monitoring mechanism. Other mechanisms to mitigate the agency costs of FCF such as dividend payout and share repurchase (not studied earlier) do not moderate the higher audit fees. [source]

Effect of regulatory oversight on the association between internal governance characteristics and audit fees

ACCOUNTING & FINANCE, Issue 1 2008
El'fred Boo
G34; M42; N40 Abstract We examine the relationship between internal governance, external audit monitoring and regulatory oversight for a sample comprising industrial companies and financial/utility companies subject to additional industry-specific regulation. Our results indicate that the association between audit fees and board/audit committee independence and size are weaker for regulated companies. These observations are consistent with the notion that regulatory oversight partially substitutes the external audit as a monitoring mechanism. However, boards/audit committees with more multiple directorships demand a more extensive audit in the presence of regulatory oversight to protect their reputation capital. Our study enhances our understanding of the complex relationships among the major corporate governance elements. [source]

Note on audit fee premiums to client size and industry specialization

ACCOUNTING & FINANCE, Issue 3 2007
Elizabeth Carson
M42 Abstract This research note examines the impact of client size on the estimation of audit fee premiums in the Australian market for audit services. Previous research suggests that higher audit fees are expected for both larger clients and for industry specialization. We find that in the Australian market for audit services, the fee premium attributed to industry specialist audit firms is concentrated in the audit fees paid by the largest clients in each industry. One reason for higher fees paid by larger clients is the demand for additional audit services. We find higher fees for companies cross-listed on US exchanges. We also find that fee premiums to auditors that are city-industry leaders are strongly related to client size. [source]

Relation between external audit fees, audit committee characteristics and internal audit

ACCOUNTING & FINANCE, Issue 3 2006
Jenny Goodwin-Stewart
M42; G34 Abstract This study examines whether the existence of an audit committee, audit committee characteristics and the use of internal audit are associated with higher external audit fees. Higher audit fees imply increased audit testing and higher audit quality. We find that the existence of an audit committee, more frequent committee meetings and increased use of internal audit are related to higher audit fees. The expertise of audit committee members is associated with higher audit fees when meeting frequency and independence are low. These findings are consistent with an increased demand for higher quality auditing by audit committees, and by firms that make greater use of internal audit. [source]

The Impact of the Sarbanes-Oxley Act on the Audit Fees of Australian Listed Firms

Evidence on the Impact of Internal Control and Corporate Governance on Audit Fees

Propensity to Switch Auditors and Strictness of Legal Liability Environment: The Role of Audit Mispricing

INTERNATIONAL JOURNAL OF AUDITING, Issue 3 2007
Juha-Pekka Kallunki
This article investigates whether firms paying relatively high audit fees are more likely to switch auditors. Moreover, we investigate whether the legal liability environment affects the propensity to switch auditors owing to audit fee under- and/or over-pricing. Our empirical results from analysing the Compustat Global Vantage data from ten countries show that the over-pricing of auditing services increases the likelihood of auditor switches. We also find that a greater degree of under-pricing of auditing services in the initial audit engagement year is required to cause an auditor switch in countries with a stringent legal environment as opposed to countries with a lax legal environment. All the results remain unchanged after controlling for numerous firm and country differences. [source]

The Role and Functions of Audit Committees in the Indian Corporate Governance: Empirical Findings

INTERNATIONAL JOURNAL OF AUDITING, Issue 1 2004
Jawaher Al-Mudhaki
This paper examines the composition, focus and functions of audit committees (ACs), the effects of meetings and the criteria used in the selection of members by Indian listed companies from 73 questionnaire responses. The survey was carried out during February,March, 2002. The study reveals that so far only 56.2% of companies have established an AC despite the fact that it is now mandatory. Of those companies which have ACs, 68.3% have between three and six members on ACs. However, only 14.6% of companies have independent non-executive directors on the committee, while 90.2% have non-executive directors. This shows a lack of independent representation on the committees. The functions of ACs are quite diverse and are classified in three areas: financial statements and reporting, audit planning, and internal control and evaluation. The review of annual audited financial statements, discussion and recommendations of audit fees and review of the effectiveness of internal control were rated very highly by the respondents. The review of note disclosure and scope of external audit work are other important functions performed by ACs. The most important areas for focus are compliance with the standards and regulatory bodies, probing material items and undisclosed liabilities. However, there are statistical differences between medium and large sized companies in the performance of their role. The main criteria used for membership of an AC are: experience and knowledge of business, experience of holding similar positions and accounting and finance expertise. Ownership in the company was not perceived as an important criterion. The majority of companies' AC meetings are held monthly or quarterly. MANOVA analysis reveals that the frequency of AC meetings has an effect on the internal control functions. The study concludes that the concept of an AC is not new in India but their formation is slow and their composition lacks independence. AC functions are still concentrated in the traditional areas of accounting and their role is not changing fast enough to make the corporate governance more effective. [source]

Country-Specific Risk and the Cost and Benefit of Audit Quality: Evidence from Israeli Initial Public Offerings in the United States

INTERNATIONAL JOURNAL OF AUDITING, Issue 3 2002
Edward B. Douthett Jr.
We examine audit fees and returns to auditor reputation for Israeli entrepreneurs making initial public offerings (IPOs) of equity in U.S. capital markets. We find that the cost of audit quality in terms of audit fees is higher, and the benefit of audit quality in terms of IPO proceeds is lower for a sample of Israeli IPOs matched to a control sample of U.S. IPOs. The results suggest that the higher levels of country-specific risk in Israel are modifying the cost and benefits of audit quality for Israeli entrepreneurs selling securities in the U.S. [source]

The Relationship between Categories of Non-Audit Services and Audit Fees: Evidence from UK Companies

International Dimensions of the Audit Fee Determinants Literature

INTERNATIONAL JOURNAL OF AUDITING, Issue 1 2002
Phillip E. Cobbin
A review of the literature in the area of audit fee determinants includes fifty-six studies drawn from seventeen countries over the period 1980 to 2000. The review starts with work initially based in the US market and then shows that attention spread almost immediately to a number of other markets, some of which were similar in structure to that of the US including the United Kingdom, Australia, Canada, India, New Zealand and Ireland. A second extension of this work has seen studies based on data drawn from markets including Pakistan, Bangladesh, Malaysia, Singapore, Hong Kong, Japan, South Korea, South Africa, The Netherlands and Norway. The comparative, analytical review highlights the use of a core audit fee determinants model that is used and adapted in a limited way, to reflect market specific circumstances and to address market specific issues. The review indicates some consistency across markets in respect of generic variables identified as core determinants of the level of audit fees. There is little evidence in the literature to indicate historical, cultural, institutional or other market-specific factors being addressed in a systematic way, particularly in respect of developing countries. [source]

The Regulation of Public Company Auditing: Evidence from the Transition to AS5

JOURNAL OF ACCOUNTING RESEARCH, Issue 4 2010
RAJIB DOOGAR
ABSTRACT The replacement of Auditing Standard No. 2 (AS2) by Auditing Standard No. 5 (AS5) creates a natural experiment that sheds light on (1) potential inefficiencies caused by regulatory responses to a political crisis and (2) audit efficiency and effectiveness improvements resulting from the risk-based approach embodied in AS5. We study these effects by examining the impact of AS5 on audit fees. We find that AS5 audit fees are aligned with auditee fraud risk, but not AS2 audit fees. Second, relative to AS2 benchmark levels, AS5 audit fees are, on average, lower for all auditees. Third, relative to AS2 benchmarks, AS5 fees are lower for lower-fraud-risk auditees but greater for higher-fraud-risk auditees. Overall, the evidence is consistent with (1) initial overregulation (via AS2) followed by reform (via AS5) and (2) auditors deploying a risk-based audit approach to obtain both efficiency and potential effectiveness gains in audit production. [source]