Faculty Scholarship 1994 - Present

An International Study of Cross-Sectional Variations in Audit Fees

Previous studies in the market for auditing services and modeling of audit fees have been limited to either a single country (Johnson, Walter, and Westergaard 1995) or a single region (Simon, Teo, and Trompeter 1992). This study extends previous work by building an audit fees model for 12 countries in Europe, Africa, and Asia. A more comprehensive model is tested which includes industry classifications, a variable not tested by most previous studies, and also includes five years of audit fees. Data was collected from International Accounting and Auditing Trends, Fourth Edition (1995) for the 12 countries: Australia, Hong Kong, India, Ireland, Kenya, Malaysia, New Zealand, Nigeria, Pakistan, Singapore, Sri Lanka,and South Africa. Our results show that, on average, companies in developed countries pay higher audit fees than companies in developing countries. Companies in manufacturing industries have the lowest fees charged to them, as compared to the other four industries, presumably because auditors get more training in auditing manufacturing companies than other companies. As in previous studies, our results show that the Big 6 audit firms charge higher fees than non-Big 6 auditors. The fee premium may be due to the need for quality- differentiated audits in the emerging capital markets, or due to the brand name reputation enjoyed by the Big 6.