Audit Fees : The Effects of Auditee, Auditor and Industry Differences

The mathematical modelling of audit fees has emerged in research as one means by which the factors which explain the level and variability of audit fees can be examined. Existing literature shows that auditee size and complexity are major determinants of audit costs incurred by an auditee. Examines the power of these and other variables in explaining the variability of external audit fees for a sample of Australia′s largest listed companies and contributes to the existing literature by examining other potentially important factors which explain audit fees, some of which are unique to the present study. Reports results for the effect of: the presence of particular audit firms (for example, Coopers & Lybrand as opposed to say, Price Waterhouse); the extent of the level of internal audit in the auditee and; industrial classification of the auditee (for example, mining, manufacturing, retail, etc.). Results show that a very high proportion of reported audit fees can be explained by linear regression models, especially for certain auditors (for example, Peat Marwick, where over 93 per cent of the variability in fees can be explained by the model) and for certain industries (for example, the building industry, where over 90 per cent of variability is explained). Notes several limitations, especially those relating to measurement difficulties.