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The determinants of audit fees:evidence from the charity sector

Beattie, Vivien and Goodacre, Alan and Pratt, Ken and Stevenson, Joanna (2001) The determinants of audit fees:evidence from the charity sector. Accounting and Business Research, 31 (4). pp. 243-274. ISSN 0001-4788

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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: Article
Journal or Publication Title: Accounting and Business Research
Uncontrolled Keywords: audit fees ; auditor expertise ; charity sector ; fee premium ; non-audit services
Subjects:
Departments: Lancaster University Management School > Accounting & Finance
ID Code: 66448
Deposited By: ep_importer_pure
Deposited On: 17 Sep 2013 09:11
Refereed?: Yes
Published?: Published
Last Modified: 21 Sep 2017 05:48
Identification Number:
URI: http://eprints.lancs.ac.uk/id/eprint/66448

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