The Pricing of Audit and Non-Audit Services in a Regulated Environment : A Longitudinal Study of the UK Life Insurance Industry

This paper studies the relationship between audit and non-audit service fees in the UK life insurance industry in the period 1999-2009. Moreover, we examine the impact of ownership structure and internal governance on the level of direct audit fees. Utilizing panel data econometric techniques, we find that audit fees are positively (negatively) affected by actuarial (legal service) fees. We conclude that actuarial services generate knowledge spillover, while legal services impair auditor's independence. Our results indicate that the improved corporate governance environment after the Revised Code of 2003 filtered the fundamental nature of different non-audit services. Furthermore, mutual ownership and independent board of directors increase the level of audit fees. Finally, we find evidence for the inter-temporal determination of audit fees