The determinants of audit fees - evidence from the voluntary sector

Beattie, V., Goodacre, A., Pratt, K. and Stevenson, J. (2001) The determinants of audit fees - evidence from the voluntary sector. Accounting and Business Research, 31(4), pp. 243-274.

Abstract

Given the growing demand for accountability in the public sector, there is a need to begin to investigate audit pricing issues in this sector. This study makes three contributions. First, it develops and estimates, for the first time, a model of audit fee determinants for the charity sector. As in previous private sector company studies, size, organisational complexity and audit firm location are the major determinants. A positive association between audit fees and fees for non-audit services is also observed. Charity sector factors of empirical significance include the nature of the charity (i.e., grant-making or fund-raising), its area of activity and the importance of trading income. Separate models for grant-making and fund-raising charities reflect the relative complexity of the audit of fund-raising charities. Second, the lower auditor concentration in the charity sector market, compared to the private sector market, permits a more powerful test of whether large firms and/or auditor expertise are rewarded with a fee premium. In the more complex audit environment of fund-raising charities, the results show that Big Six audit firms receive higher audit fees (18.5% on average) than non-Big Six firms. Also, non-Big Six audit firms with charity expertise are rewarded with a fee premium over other non-Big Six firms. Finally, the study demonstrates that the charity audit fee rate is significantly lower than that of private sector companies; in fact it is approximately half. A change in the reporting of charity audit fees is proposed to reflect any element of 'charitable giving' by the audit firm.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Beattie, Prof Vivien
• Authors: Beattie, V., Goodacre, A., Pratt, K., and Stevenson, J.
• Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
• College/School: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Journal Name: Accounting and Business Research
• Publisher: Institute of Chartered Accountants in England and Wales
• ISSN: 0001-4788
• Copyright Holders: Copyright © 2001 Institute of Chartered Accountants in England and Wales
• First Published: First published in Accounting and Business Research 31(4):243-274
• Publisher Policy: Reproduced with the permission of the publisher