Audit Fees at U.S. Non-Profit Organizations

Abstract

SUMMARY: Non-profit organizations account for a significant share of the U.S. national economy. Some recent scandals and governance failures in non-profits have led to increased scrutiny of non-profits, including new state laws related to external audits. In this paper, we extend audit fee research by developing a model that seeks to explain non-profit audit fees. Results from data provided by 125 of the largest non-profits indicate that auditee size, complexity, liquidity, and resource dependency are associated with audit fees; in addition, audit fees are higher for non-profits with a Big 4 auditor. The results also suggest that alternative monitoring mechanisms, such as a good audit committee and internal auditing, are complements rather than substitutes for monitoring by external auditors. Our results can be useful for researchers examining non-profit auditing-related issues and for non-profit organizations seeking to benchmark their audit fees.