Abstract
This paper examines the association between audit fees and attributes of internal audit (IA), audit committee (AC), as measured by independence and financial expertise, as well as characteristics of the firm. The determinants of audit fees have been extensively investigated in the prior literature, but the results are conflicting. We develop a comprehensive model from a multi-country and multi-industry perspective. A total of 3,136 companies covering a period of 10 years (2011-2020) with 15,247 observations from 55 countries were included in this study. We found that the most critical variables that have a significant positive effect on the audit fees are client size, leverage (risk), profitability, complexity, losses, AC independence, AC expertise and auditor size. The study also shows that audit pricing is significantly negatively related to foreign operations, auditor tenure, and internal audit independence. The results highlight variables that affect audit fees across a range of countries/industries.
Highlights
This paper examines the association between audit fees and attributes of internal audit (IA), audit committee (AC), measured by independence and financial expertise, as well as characteristics of the firm
We investigate this issue from a multi-country and multiindustry perspective, probing for variables that consistently affect audit fees across such a diverse landscape
We investigated the problem of multicollinearity by examining tolerance value and variance inflation factor (VIF)
Summary
This paper examines the association between audit fees and attributes of internal audit (IA), audit committee (AC), measured by independence and financial expertise, as well as characteristics of the firm. We investigate this issue from a multi-country and multiindustry perspective, probing for variables that consistently affect audit fees across such a diverse landscape. The empirical evidence related to the effects that the attributes of IA, AC and firm characteristics on audit fees are still inconclusive at the global level. AC attempts to mitigate agency problems by ensuring quality financial reporting to principals.
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