Abstract
The concept of audit fee has received immense empirical investigation in literature. However, these vast studies have not sufficiently explored the relation of the concept with tax aggressiveness and corporate governance. This study therefore sought to provide empirical evidence as to whether tax aggressive and corporate governance mechanisms are significantly associated with audit fees among listed firms in Nigeria. Leaning on the agency and stakeholder theories, the study examined the measures of tax aggressiveness of effective tax rate and cash tax rate as well as corporate governance mechanisms of board gender diversity, audit committee diligence, and board independence; and how these variables explain changes in external audit fees. A sample of one hundred and seven (107) firms from the entire firms quoted on the Nigerian Stock Exchange as at December, 2018 was utilised. Data were sourced solely from annual financial statements of the studied firms over a ten-year period (2009 to 2018). The panel regression technique, with preference for the random effect model based on the outcome of the Hausman test, was employed to estimate the balanced panel data. The results of the study showed that cash tax rate, audit committee diligence and board independence all exert positive and significant effect on audit fees. Surprisingly, the study revealed a positive but statistically insignificant link between board gender diversity and audit fees. This result may not be unconnected with the low presence of female directors on the board of the firms investigated. In light of the findings, we therefore recommend that more female gender should be allowed to sit on the boards of listed firms in Nigeria in line with the Norwegian model of 40% female gender representation and the Federal Government 35% Affirmative Action. We also recommend that board independence should be encouraged more so as to enhance their oversight functions, and promote quality financial reporting and audit amongst listed firms in Nigeria.
Highlights
The auditing profession has come under increased examination in recent years regarding how auditors determine the amount of audit fees charged for audit services (Basioudis, Geiger, & Papanatasiou, 2006), which has been on the rise
Studies such as Tsui, Jaggi, and Gul (2001) and Razman and Iskandar (2004) affirmed that the relationship between audit committee diligence and audit fees was not likely to be linear, as diligent audit committee might be considered by external auditors as contributing to improving the general control environment installed by the audit client, reducing the amount of audit risk associated with an audit assignment, amount of audit work required and the audit fees payable
Most studies on the concept of audit fee have often intended to focus on determinants like audit client characteristics, audit firm characteristics and certain corporate governance variables as against firm‟s behaviour, such as tax aggressiveness, despite its significance to audit fees determination
Summary
The auditing profession has come under increased examination in recent years regarding how auditors determine the amount of audit fees charged for audit services (Basioudis, Geiger, & Papanatasiou, 2006), which has been on the rise. A common theme across the aforementioned studies is that they report a direct relationship between tax aggressiveness and external audit, indicating that auditors see tax aggressiveness as a signal of potential audit engagement risk, and will adjust their risk assessment, increase audit effort and fees to compensate for the expected value of possible future liability losses, including litigation costs This stream of studies offer partial explanations as to the extent to which the adoption of tax aggressive strategies by manager can facilitate or hinder management‟s fiduciary duty to shareholders as they habitually examined the shareholder-managers agency costs only from the perspective of the link between tax aggressiveness and audit fees, without considering the relevance of corporate governance to the dynamics of both concepts.
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