Audit Fees Determinants: A Study on the Impact of Key Audit Matters Reporting and other Factors

Zuaini Ishak Et.Al

doi:10.17762/turcomat.v12i3.993

Abstract

Knowledge is now an essential source of competitive advantage. Itenhanceseconomic growth and increasescorporate value. In the field of auditing, authority was aware of the need for improved reporting and thus has issued a brand newstandard related to auditor's report.While the new report is expected to enhanceaudit reporting and improve the quality of audit, the move may also increasethe audit costs as auditorsnow needto expandtheir efforts. We analyzed 261 companies listed on Bursa Malaysia and the results indicate that the requirement to improve auditor's communication through enhanced reporting does not influence audit fees. Instead, the study suggests that the company size, poor financial performance and liquidity issue are key determinants of audit fees. The two world's largest audit firms, i.e., PWC and KPMG, are found to charge higher fees than others, possibly for the brand name. This study informs regulators of the influence of the new requirement on audit output costs.It also offers insight into the main drivers for audit pricing following the current reporting requirement.

Highlights

The present paper examines the impact of the mandatory enhanced auditors' reporting on audit fees
It identifies the determinants of audit fee and audit fees rate during the period surrounding the implementation of the requirement
The inclusion of Key Audit Matter Reporting (KAM) reporting is aimed to result in better financial reporting; it may increase the audit fees

Summary

Introduction

The present paper examines the impact of the mandatory enhanced auditors' reporting on auditing cost It identifies the determinants of audit fee and audit fees rate during the period surrounding the implementation of the requirement. Excessive increases in audit fees are of concern as it can generate incentives for auditors to comply with client pressure for substandard reporting, thereby eroding audit quality It is the objective of the present study to examine the impact of the enhanced auditors' reporting on audit fees charged by auditors to their clients after the introduction of the requirement. Excessive auditing fees will provide auditors with incentives to meet client pressure to report inadequately and compromise audit efficiency.This study would inform regulators of the influence of the new requirement on audit output costs, and subsequently, would provide insight oncriticaldrivers for audit pricing following the current reporting requirement.

Background and Research Questions

Prior Audit Fees studies

Sample Selection

Model Estimation

Descriptive Analysis

Conclusion and Future Work