The Determinants of Audit Fees. Further Evidence From the UK Charity Sector

Abstract

Given the lack of literature and the ever growing relevance of charities, the present paper investigates the determinants of audit fees in the UK charity sector. It proposes a theoretical framework to determine the audit fee, which is empirically tested on a dataset of 119 “largest” charities. The paper also investigates the presence of a fee premium associated with (now) Big4 audit firms and expertise in charity auditing, and compares the results with those of a leading study in the UK context (Beattie et al., 2001). Our findings basically confirm those of Beattie et al. (2001). The evidence shows that size, risk, and fees for Non-Audit Services (NAS) are the main determinants of audit fee determination, while, contrary to research in the private sector, the organisational complexity of the charity does not seem to have significant influence on audit fees. The results also show a positive association between audit fees and NAS fees, the presence of an audit fee premium between Big4 and non-Big4 auditors, as well as significant higher remuneration for the auditors’ expertise.