The pricing relationship of audits and related services in municipal governments

Abstract

For private sector organizations, Palmrose and Simunic document a positive relationship between fees for management advisory services (MAS) and fees for audits paid to incumbent auditors(1). In contrast, Abdel-Khalik provides evidence that the purchase of MAS does not affect audit fees.(2) This study, unlike previous studies, examines the relationship between the purchase of MAS and audit fees in government organizations. Results suggest a negative relationship between audit fees and fees paid for related audit services provided by incumbent auditors. In addition, bond issuance and consulting fees paid to incumbent auditors and all fees paid to nonincumbent auditors are found to be not significant.