Determinants of Audit Fees: Evidence from Lebanon

Walid El-Gammal

doi:10.5539/ibr.v5n11p136

Abstract

This paper studies the views of external auditors and client’s representatives (accountants, financial controllers and internal auditors) about the factors that affect determining audit fees and provides evidence whether these factors are related to audit firm characteristics or the client firm characteristics. A sample of 80 respondents provided the empirical data for this research by answering a self administered questionnaire. To conduct data analysis descriptive statistics, means, standard deviation and Mann-Whitney U test were used. The outcome of the study provides a vital insight into the determinants of audit fees from a developing country like Lebanon. It was found that all the pre-suggested determinants of audit fees are extremely important or important. Both external auditors and client representatives groups agree that the most important factor affecting determining amount of audit fees is whether the audit firm is one of the big four or notand the least important factor is the size of the audit firm based on the number of its employees. The results also show that the degree of importance of each determinant of audit fees is homogenous among the two groups of respondents.

Highlights

IntroductionAudit fees can be defined as the amounts of fees (wages) charged by the auditor for an audit process performed for the accounts of an enterprise (auditee), the determination of the audit fees is based on the contract between the auditor and the auditee in accordance with time spent on the audit process, the service required, and the number of staff needed for the audit process
Audit fees can be defined as the amounts of fees charged by the auditor for an audit process performed for the accounts of an enterprise, the determination of the audit fees is based on the contract between the auditor and the auditee in accordance with time spent on the audit process, the service required, and the number of staff needed for the audit process
The sample selected comprised of external auditors, and Client representatives, in other words all the parts involved in the auditing process from inside and outside the auditee firm

Summary

Introduction

Audit fees can be defined as the amounts of fees (wages) charged by the auditor for an audit process performed for the accounts of an enterprise (auditee), the determination of the audit fees is based on the contract between the auditor and the auditee in accordance with time spent on the audit process, the service required, and the number of staff needed for the audit process. There is a growing trend in recent years in accounting about discussing the issue of audit fees, how do auditors determine the amount of fees required from the auditee. This is an important question that needs an answer. Prior research tried to examine whether determining the audit fees is affected by the audit company attributes (like size, reputation, experience, competition, industry specialization and whether it is from the big four) or by the client’s company characteristics (auditee attributes like size, complexity risk, and profitability). Most of the prior studies which presented empirical evidence of the effect of the attributes of audited companies on the audit fees, focused mostly on developed economies (UK: Taylor & Baker, 1981; Haskins & Williams, 1988; Chan, Ezzamel & Gwilliam, 1993; Ezzamel, Gwilliam & Holland, 1996; Iyer, 1996; Chung & Narasimhan, 2002; Ezzamel, Gwilliam & Holland, 2002; Neimi, 2002; Simon & Taylor, 2002; Australia: Francis, 1984; Francis & Stokes, 1986; Craswell, Francis & Taylor, 1995; Craswell & Francis, 1999; Canada: Chung & Lindsay, 1988; Anderson & Zeghal, 1994; Ireland: Haskins & Williams, 1988; Japan: Taylor, 1997; New Zealand: Firth, 1985; Mike, Mike & Muhammad, 1997; Norway: Firth, 1997)

Methods

Results

Conclusion