scholarly journals The Effects of Internal Audit, Audit Committee and Firm Characteristics on Audit Fees in a Multi-Country and Industry Setting

2021 ◽  
Vol 11 (2) ◽  
pp. 25-35
Author(s):  
Prem Lal Joshi ◽  
Ashutosh Deshmukh ◽  
Jamel Azibi
Keyword(s):  
Audit Committee ◽  
Internal Audit ◽  
Audit Fees ◽  
Firm Characteristics ◽  
Audit Pricing ◽  
Financial Expertise ◽  
Prior Literature ◽  
Foreign Operations ◽  
Audit Independence ◽  
Positive Effect

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.

scholarly journals The Effects of Board Interlocks With an Allegedly Fraudulent Company on Audit Fees

2020 ◽  
pp. 0148558X2097194
Author(s):  
Mariya N. Ivanova ◽  
Annalisa Prencipe
Keyword(s):  
Adverse Event ◽  
Side Effect ◽  
Audit Committee ◽  
Audit Fees ◽  
Financial Fraud ◽  
Public Disclosure ◽  
The Public ◽  
Prior Literature ◽  
Client Side ◽  
Positive Effect

Drawing on prior literature on audit fees, client reputation, and corporate governance, we posit that a material adverse event at a firm, such as a financial fraud allegation, leads to an increase in the audit fees of firms connected to the former by a board interlock. We propose two possible mechanisms to explain the upward pressure on audit fees: a client-side effect, where the client demands additional audit services, and an auditor-side effect, where the auditor raises its audit fees due to a perceived increase in audit engagement risk. The results indicate an average marginal increase of 12.86% in audit fees in the year following the public revelation of financial fraud. Additional analyses suggest that an auditor-side effect is in place, while we cannot find clear evidence supporting the client-side effect. Furthermore, we document that the positive effect on audit fees persists for up to at least 2 years after public disclosure of the event when the interlocked director serves as a member of the audit committee. JEL Descriptors: G34, M40, M42

CEO Financial Background and Audit Pricing

2016 ◽  
Vol 30 (3) ◽  
pp. 325-339 ◽  
Author(s):  
Rachana Kalelkar ◽  
Sarfraz Khan
Keyword(s):  
Financial Reporting ◽  
Chief Executive Officers ◽  
Work Experience ◽  
Audit Committee ◽  
Reporting Quality ◽  
Chief Executive ◽  
Audit Fees ◽  
Fixed Effect Model ◽  
Audit Pricing ◽  
Advantages And Disadvantages

SYNOPSIS Accounting scholars theorize that audit price is a function of a client's audit and business risk. Existing research finds that the functional expertise of Chief Executive Officers (CEOs) in finance improves financial reporting quality (Matsunaga, Wang, and Yeung 2013), increases profitability, and reduces the likelihood of firm failure (Custodio and Metzger 2014). These factors suggest that auditors' engagement risk decreases when incumbent CEOs possess financial expertise, raising the likelihood that auditors will charge these firms lower fees. In this study, we examine whether CEOs' work experience in accounting- and finance-related jobs affects audit fees. Using a panel of U.S. firms between 2004 and 2013, we find that firms that have a financial expert CEO pay lower audit fees. Our results are robust to various specifications, including firm-fixed effect model and specifications that control for other CEO- and Chief Financial Officer (CFO)-specific and audit committee characteristics. Our findings thus add to the literature on the advantages and disadvantages of a functional background of top managers and how this background can create value for a firm through savings in audit fees.

The Association between Audit Committee Characteristics and Audit Fees

2003 ◽  
Vol 22 (2) ◽  
pp. 17-32 ◽  
Author(s):  
Lawrence J. Abbott ◽  
Susan Parker ◽  
Gary F. Peters ◽  
K. Raghunandan
Keyword(s):  
Audit Committee ◽  
Audit Fees ◽  
Audit Committees ◽  
Independent Directors ◽  
Span Of Control ◽  
Big 5 ◽  
Financial Expertise ◽  
Disclosure Rules ◽  
Using Data

This study examines the association between audit committee characteristics and audit fees, using data gathered under the recent SEC fee disclosure rules. We hypothesize that audit fees will be positively associated with audit committee independence, financial expertise, and meeting frequency. We examine a sample of 492 nonregulated, Big 5-audited firms that filed proxy statements with the SEC in the period from February 5, 2001 to June 30, 2001. We find that audit committee independence (defined as an audit committee comprised entirely of outside, independent directors) and financial expertise (defined as an audit committee containing at least one member with financial expertise) are significantly, positively associated with audit fees. This is in contrast to the findings of Carcello et al. (2002a), who find that audit committee characteristics are not significant in the presence of board-related variables. Meeting frequency (defined as an audit committee that meets at least four times annually) was not associated with higher audit fees at conventional levels. This evidence is consistent with audit committees taking actions within their span of control to ensure a higher level of audit coverage.

The Cost of Compliance to Sarbanes-Oxley: An Examination of the Real Estate Investment Industry

2013 ◽  
Vol 33 (1) ◽  
pp. 177-186 ◽  
Author(s):  
Wayne H. Shaw ◽  
William D. Terando
Keyword(s):  
Internal Control ◽  
Section 404 ◽  
Audit Pricing ◽  
Industrial Firms ◽  
The Real Estate ◽  
Sarbanes Oxley ◽  
Foreign Operations ◽  
Dichotomous Variables ◽  
The Cost ◽  
Audit Independence

SUMMARY Studies documenting the increased audit cost of the Sarbanes-Oxley Act of 2002 have focused on large cross industry samples of industrial firms. To control for differences in industry and business complexities such as foreign operations or segments, these studies have relied on various dichotomous variables. In addition, the studies have either focused on the cost of Section 404 related to internal control testing or assumed that the increases in audit pricing occurred in 2002 when the law was enacted. By focusing on one industry (REITS), we find that dummy variables may not adequately capture the effect of complexity in an industry. We also show that considering within-industry variations in audit pricing leads to the conclusion that the increase due to SOX is actually lower than previously thought. Finally, by structuring the tests to measure separately for the costs of the audit independence provisions and the internal control provisions, we find that the costs of SOX were much greater than that shown in prior studies, resulting in a 200 percent increase in SOX related costs to REITs with about 75 percent of that increase related to Section 404.

scholarly journals Audit committee – internal audit interaction and moral courage

2016 ◽  
Vol 31 (4/5) ◽  
pp. 403-433 ◽  
Author(s):  
Imen Khelil ◽  
Khaled Hussainey ◽  
Hedi Noubbigh
Keyword(s):  
Audit Committee ◽  
Critical Role ◽  
Internal Audit ◽  
Moral Courage ◽  
Content Type ◽  
Second Stage ◽  
Internal Audit Function ◽  
Mixed Approach ◽  
Positive Effect

Purpose This paper aims to offer empirical evidence about the effect of the interaction between the audit committee and the internal audit function (IAF) on the moral courage of the chief audit executive (CAE). Design/methodology/approach A mixed approach was followed. In the first stage, questionnaires were sent to CAEs of 60 listed, financial and non-financial Tunisian companies. To enhance the depth of the analysis, in the second stage, semi-directed interviews with 22 CAEs from listed financial and non-financial Tunisian companies were performed. Findings This paper found that the existence of private access to the audit committee has a positive effect on the moral courage of the CAE. The number of meetings between the audit committee and the CAE, the examination of internal audit programmes and results together with the contribution of the audit committee to the appointment and dismissal of the CAE do not show a significant link with the moral courage of the CAE. It also found an insignificant relationship between the audit committee’s examination of interaction between management and the IAF and the moral courage of the CAE. Originality/value To the best of the authors' knowledge, this paper fills one of the major research gaps in the auditing literature by demonstrating the critical role of audit committee–internal audit interaction in promoting the CAE’s moral courage to behave ethically.

Audit Committee Director-Auditor Interlocking and Perceptions of Earnings Quality

2014 ◽  
Vol 33 (4) ◽  
pp. 41-70 ◽  
Author(s):  
Jeng-Fang Chen ◽  
Yan-Yu Chou ◽  
Rong-Ruey Duh ◽  
Yu-Chen Lin
Keyword(s):  
Audit Committee ◽  
Positive Relationship ◽  
Earnings Quality ◽  
Earnings Response Coefficients ◽  
Audit Firm ◽  
Sarbanes Oxley ◽  
Financial Expertise ◽  
Earnings Response ◽  
Reported Earnings ◽  
Positive Effect

SUMMARY: Using earnings response coefficients (ERCs) from returns-earnings regressions as a proxy for investor perceptions of earnings quality, we analyze how investors perceive reported earnings when companies with interlocking audit committee directors are audited by the same audit firm (hereafter, AC director-auditor interlocking). Our empirical results show that the extent of AC director-auditor interlocking is significantly and positively associated with ERCs. By dividing the sample period into pre-Sarbanes-Oxley Act (pre-SOX, 1998 through 2001) and post-SOX (2002 through 2010) periods, we find that the significantly positive effect of AC director-auditor interlocking on ERCs only exists in the post-SOX period, indicating that investors have reacted more positively to AC director-auditor interlocking after the implementation of SOX, which requires that audit committee members be independent. Finally, using financial expertise data for the period 2003 to 2010, we find that the positive relationship between the extent of AC director-auditor interlocking and ERCs is more pronounced when interlocking audit committee directors are financial experts than when they are not financial experts.

The impact of audit committee effectiveness on audit fees and non-audit service fees

2018 ◽  
Vol 31 (2) ◽  
pp. 174-191 ◽  
Author(s):  
Muhammad Jahangir Ali ◽  
Rajbans Kaur Shingara Singh ◽  
Mahmoud Al-Akra
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Audit Fees ◽  
Audit Committees ◽  
Regulatory Requirements ◽  
Content Type ◽  
Financial Expertise ◽  
The Difference ◽  
Accounting Expertise ◽  
The Impact

Purpose The purpose of this study is to examine the impact of audit committee effectiveness on audit fees and non-audit service (NAS) fees in a less regulatory environment. Design/methodology/approach The authors construct a composite audit committee effectiveness measure incorporating audit committee independence, diligence, size, financial expertise and the chairperson’s accounting expertise. Findings The authors find that audit committee effectiveness has a positive significant impact on both audit fees and NAS fees. This suggests that effective audit committees can hold auditors accountable resulting in better audit quality and consequently higher audit fees. Originality/value The link between more effective audit committees with higher NAS purchases can be explained in light of the difference in regulatory requirements providing audit committees with decision rights on the use of NASs, therefore approving more NAS and increasing NASF. Additional tests and robustness analyses confirm the results.

THE INFLUENCE OF INTENAL AUDIT ON FINANCIAL MANAGEMENT IN MARSABIT COUNTY GOVERNMENT- KENYA

2021 ◽  
Vol 6 (2) ◽  
pp. 62-70
Author(s):  
Abudo Yohana Dambala ◽  
Dr. Nancy Rintari ◽  
Fredrick Mutea
Keyword(s):  
Financial Management ◽  
Audit Committee ◽  
Internal Audit ◽  
Primary Data ◽  
County Government ◽  
Unique Contribution ◽  
Wealth Creation ◽  
Policy And Practice ◽  
Public Funds ◽  
Positive Effect

Purpose: The purpose of this study was to determine the effect of internal audit on the financial management in the County Government of Marsabit. Methodology: The study adopted descriptive survey was adopted for this study. The targeted study population was 63 staff members who are Job group K and above from the department of Finance in the directorate of Accounts, Revenue, Procurement and Internal Audit. The study employed simple structured questionnaires to gather primary data which was analyzed using SPSS. Results: The study revealed that internal audit function had a significant influence on financial management at the county government of Marsabit (r=0.691, p=0.00) Unique contribution to theory, policy and practice: Good financial management is very essential in protecting the public funds. This study encourages good practices of accountability, transparency and wealth creation with public funds. The study is beneficial to not only Marsabit County but other counties in Kenya. The study concludes that the Marsabit County has a functional internal audit committee and internal auditors perform their duties with great autonomy and independence. The study further concludes that internal audit has strong positive effect on the financial management in Marsabit County. The study recommends internal audit to be well staffed and resourced so that it is able to carry out regular audits of the county government. This will improve financial management of the County Government since it has been established that internal audit has strong positive effect on the financial management. Additional research can be conducted in the National government on factors influencing financial management and drawing comparisons.

scholarly journals Análisis de la Influencia de la Función de Auditoría Interna sobre las Cuotas de Auditoría

2019 ◽  
Vol 22 (1) ◽  
pp. 100-111 ◽  
Author(s):  
Laura Sierra García ◽  
Emiliano Ruiz Barbadillo ◽  
Manuel Orta Pérez
Keyword(s):  
Audit Committee ◽  
Internal Audit ◽  
Audit Fees ◽  
Regulatory Agencies ◽  
External Auditors ◽  
Empirical Results ◽  
Internal Audit Function ◽  
Auditor Fees ◽  
The Relationship ◽  
Practical Implications

The aim of this paper is to analyse the relationship between the internal audit function and auditor's fees using a sample of Spanish listed companies between 2003 and 2011. We use the audit fees model that was proposed by Simunic (1980). Our results indicate that fees are greater in those companies that have an internal audit function. In addition, if there are meetings between the audit committee and the internal audit function, this is statistically significant with audit fees. This paper contributes to literature in several ways. Firstly, there are no previous papers in Spain, unlike other contexts, on the relationship between internal audit and auditor fees. Secondly, the empirical results detected in previous studies are conflicting; therefore, there is a need to complement them. Finally, the findings have practical implications for companies, external auditors and regulatory agencies themselves. El objetivo de este trabajo es analizar la relación existente entre la función de auditoría interna y los honorarios del auditor sobre una muestra de empresas que cotizan en el mercado continuo español entre 2003 y 2011. Utilizando el modelo de honorarios de auditoría propuesto por Simunic (1980), los resultados indican que los honorarios de auditoría son mayores en aquellas compañías que cuentan con la existencia de un departamento de auditoría interna. Asimismo, la existencia de reuniones entre el comité de auditoría y la función de auditoría interna es estadísticamente significativa con los honorarios. Este estudio contribuye a la literatura de diversas formas. En primer lugar, no existen trabajos anteriores en España, a diferencia de otros contextos, sobre la relación entre auditoría interna y honorarios. En segundo lugar, los resultados empíricos detectados en estudios previos resultan contradictorios por lo tanto lleva a la necesidad de complementarlos. Finalmente, los resultados tiene implicaciones prácticas para la empresa, los auditores externos y los propios organismos reguladores.

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