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Appears in Collections:Accounting and Finance Working Papers
Title: The Determinants of Audit Fees - Evidence from the Voluntary Sector
Authors: Beattie, Vivien
Goodacre, Alan
Pratt, Ken
Stevenson, Joanna
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Citation: Beattie V, Goodacre A, Pratt K & Stevenson J (2000) The Determinants of Audit Fees - Evidence from the Voluntary Sector. University of Stirling, Department of Accounting, Finance & Law, Discussion Paper, 00/04. University of Stirling.
Keywords: Audit fees
Auditor expertise
Charity sector
Non-profit organisation
Fee premium
Non-audit services
JEL Code(s): M49
Issue Date: Nov-2000
Publisher: University of Stirling
Series/Report no.: University of Stirling, Department of Accounting, Finance & Law, Discussion Paper, 00/04
Abstract: Given the growing demand for accountability in the public sector, there is a need to begin to investigate audit pricing issues in markets within this sector. This study makes three principal contributions. First, it develops and estimates, for the first time, a model of audit fee determinants relevant to the charity sector. The model is based on 210 of the top 500 UK charities with average incoming resources of 27 million pounds. 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 fundamental nature of the charity (i.e., predominantly grant-making or fund-raising), the importance of trading as a source of charity income and the charity's activity. Separate models are developed for grant-making and fund-raising charities, the results reflecting 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. The results show that Big 6 audit firms receive higher audit fees (18.5%, on average) than non-Big 6 firms for audits of fund-raising charities. There is also evidence that non-Big 6 audit firms with expertise in the sector are rewarded with a fee premium over other non-Big 6 firms, again in the more complex audit environment of fund-raising charities. 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. Further research that discriminates between alternative explanations of this differential is called for. A change in the reporting of charity audit fees is proposed to reflect any element of 'charitable giving' by the audit firm.
Type: Working or Discussion Paper
Affiliation: University of Stirling
Accounting and Finance
University of Stirling
Accounting and Finance

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