The Determinants of Audit Fees: Australian Perspective

Abstract

In line with the guidelines suggested by the Australian Society of Certified Practising Accountants, a sample of 243 Australian listed companies was used in this study to investigate if the factors of auditee size, audit complexity, audit time, audit quality and audit risk could explain the variation of auditor fees. The model achieved a relatively high level of goodness-of-fit (adjusted R equals to 0.7631) and overall significance at p < 0.001 (F-ratio). Like most prior studies, auditee size appeared to be the most important factor explaining audit fee payments. However, adding a non-audit fee variable provided little incremental explanatory power to the audit pricing model, indicating that providing audit and non-audit services jointly may not create a "knowledge spillover" which is hypothesised to lead to economic rents.

Determinants of Audit Fees : Evidence from UK Alternative Investment Market

“…The findings were therefore consistent with the results of studies conducted by Brinn et al (1992) in the UK, Hay et al (2006) in New Zealand, Naser and Nuseibeh (2008) in Jordon, and Thinggaard and Kiertzner (2008) in Denmark, who found that auditee complexity has a significant impact on determining audit fees. However, these results were inconsistent with the findings of Zhang and Myrteza (1996), and Ahmed and Goyal (2005), who found a negative correlation between auditee complexity and audit fees. Auditor size in this study was assumed to be one of the factors that has a positive impact on the variation of audit fees in the AIM machinery equipment companies.…”

“…The study's finding is consistent with the results of prior researchers who conducted research in different markets, such as Simunic (1980) in the US, Chan et al (1993) in the UK, and Xu (2011) in China. Meanwhile, this result is not in line with studies from Australia by Zhang and Myrteza (1996), in Jordan by Joshi and Al-Bastaki (2000), the US by Francis (1984), and Kuwait by Al-Harshani (2008), who all found a significant positive correlation between auditee risk and audit fees, and addressed auditee risk as an important factor that effects the determination of audit fees. Auditee complexity is about the extent of the audit task.…”

“…Moreover Vu (2012) who investigated audit fees' determinants in data from Swedish non-financially listed companies for the year 2010, did not find accurate evidence on the correlation between auditee complexity measured by the nature of the firm's assets and audit fees. Furthermore, a study by Zhang and Myrteza (1996) indicated that there was a negative correlation between audit complexity and variation of the audit fees. To sum up, a review of the prior literature shows that most of the studies obtained evidence regarding a positive correlation between auditee complexity and the variation of audit fees.…”

“…Therefore, research has addressed audit risk as one of the factors that affects the determination of audit fees. An example of the importance of auditee risk on the variation of audit fees was examined by Zhang and Myrteza (1996) in a sample of 243 Australian listed companies. The authors found that within the financially distressed companies, auditors spent more time to find relevant evidence in the audit process; therefore, they charged more fees.…”

“…A number of studies have found a positive relationship between audit fees and audit timing. An Australian study by Zhang and Myrteza (1996) focused on investigating the workload required to complete the audit service for a number of Australian listed companies from 1990 to 1992. They found that there is a positive relationship between audit timing and audit fees.…”