Audit Fee Determination and Governance Structure: Empirical Evidence from UK Insurance Companies

Abstract

The quality of corporate governance is presently a matter of considerable concern in the United Kingdom. A key feature of the current debate is the perceived lack of confidence in corporate financial reporting [Committee on the Financial Aspects of Corporate Governance, 1992, p. 141. An integral part of the financial reporting process is the statutory audit which provides independent verification of corporate disclosures. In recent years, however, the auditor's role in corporate governance has been questioned. The failure of a number of high profile companies, without prior auditor warning, has raised questions about audit quality. In some instances audit users have blamed auditors explicitly for not identifying impending corporate failure and have initiated litigation in an attempt to obtain recompense for their losses [Financial Times, 13th March, 1992, p. 71. In such a hostile audit environment it is interesting to examine whether auditors are capable of identifying potentially troublesome audit assignments.