EXPLORING THE NEXUS BETWEEN AUDIT FEES AND AUDIT QUALITY: EMPIRICAL ANALYSIS OF LOCAL ACCOUNTING FIRMS IN GHANA
Abstract
Although a number of variables, including audit committee size, gender diversity, and leverage, have been found to have some correlation with audit quality in a variety of industries, including the banking and manufacturing sectors in general, not much research of this kind has been done in relation to local accounting firms in Ghana. As a result, this study attempts to close the gap by examining, among other things, how audit fees charged by local accounting firms in Ghana affect audit quality while controlling for audit committee size, firm leverage, and audit committee gender diversity. The cross-sectional data included in this study's analysis came from the 2023 World Bank Group Country Survey. The nonparametric correlation with Kendall Tau-b revealed that audit fees demonstrated a significant and weak negative correlation with audit committee gender diversity, suggesting that the higher the audit fees, the lower the audit committee gender diversity. The fitted probit regression indicates that audit fees have a significant positive impact on audit quality, suggesting that higher audit fees produce better audit quality. Therefore, as the sole regulator of accounting practices in Ghana, the Institute of Chartered Accountants, Ghana (ICAG) should establish fair and reasonable audit fees guidelines to improve audit quality. These fees guidelines should also impose severe penalties, such as a license loss for the accounting firms, if they fail to comply with the regulated price. Furthermore, ICAG should consider other factors other than revenue of local accounting firms in the determination of appropriate audit fees
Keywords:
Audit fees, Audit quality, Probit regression, Nonparametric correlationDownloads
Published
DOI:
https://doi.org/10.5281/zenodo.13628014Issue
Section
How to Cite
License
Copyright (c) 2024 Solberg Horve Mishiwo
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
References
Abu, S. (2021). Audit committee characteristics and audit fees of listed consumer goods sector in Nigeria. https://ssrn.com/abstract=3785240.
Abu, S. O., Yahaya, A. O., and Abah, C. (2018). Audit committee effectiveness and audit quality of listed insurance companies in Nigeria. International Journal of Research in Finance and Management, 1 (2), 35–44.
Abu Bakar, N. B., and Ahmad, M. (2009). Auditor independence: Malaysian accountant’s perception. International Journal of Business and Management [Online], 4 (12), 129–141. Retrieved January 4, 2020, from https://doi.org/10.5539/ijbm.v4n12p129
Areas, A.A., Elder, R.J. and Beasley, M.S. (2011). Auditing and Assurance Services: An Integrated Approach, 14th ed. New Jersey: Pearson Education, Inc.
Arrunada, B. (2000). Audit quality: attributes, private safeguards and the role of regulations. The European Accounting Review, 9 (2), 205–225, 2017.
Babatolu, A. T., & Aigienohuwa, O. O. & Uniamikogbo, E. (2016). Auditor’s Independence and Audit Quality: A Study of Selected Deposit Money Banks in Nigeria. International Journal of Finance and Accounting, 5(1): 13-21.
Davidson, R.A. and Neu, D. (1993). Note on the Association between Audit Firm Size and Audit Quality. Contemp. Account. Res., 9(2): 479-48.
Dennis, M. R., and Kunkel, A. D. (2004). Perceptions of Men, Women, And CEOs: The effects of gender identity. Social Behavior and Personality: an International Journal, 32(2), 155–171.
DeFond, M. L., Raghunandan, K. and Subramanyam, K. R. (2002). Do non-audit service fees impair auditor independence? Evidence from going concern audit opinions. Journal of Accounting Research, 40(4), 1247–1274.
Díaz, B.G., Fernández, R.G., & Díaz, A.L. (2015). Auditor tenure and audit quality in state-owned Spanish foundations, 18(2); 115-126.
Fitriany, S. Veronica, & Anggraita, V. (2016). Impact of Abnormal Audit Fees on Audit Quality: Indonesian Case. American Journal of Economics, 6(1): 72-78.
Jensen, Michael C. and W. H. (1976). Theory of the firm: Managerial Behavior, Agency Costs, and Ownership Structure. Journal of Financial Economics, 3(4), 305–360.
Ittonen, K., Miettinen, J., and Vähämaa, S. (2010). Does female representation on audit committees affect audit fees? Q. J. Financ. Acad. 49, 113–139.
Listya Y.R. & Sukrisno, A. (2014). Influence of Auditors Independence, Audit Tenure, and Audit Fee on Audit Quality of Members of Capital Market Accountant Forum in Indonesia. Procedia Soc Behav Sci.164:324-331.
Miglani, S., & Ahmed, K. (2019). Gender diversity on audit committees and its impact on audit fees.: Evidence from India. Accounting Research Journal, 32(4), 568–586.
Nekhili, M., Gull, A. A., Chtioui, T., & Radhouane, I. (2020). Gender-diverse boards and audit fees: What difference does gender Quota Legislation make? Journal of Business, Finance and Accounting, 47(1–2), 52–99.
Onaolapo, A.A., Ajulo, O.B., & Onifade, H.O. (2017). Effect of Audit Fees on Audit Quality: Evidence from Cement Manufacturing Companies in Nigeria. European Journal of Accounting, Auditing and Finance Research, 5(1):6-17.
Palmrose Z.-V (1986). Audit fees and auditor size: Further evidence. Journal of Accounting Research, 24(1), 97–110. https://doi.org/10.2307/2490806
Salehi, M., & Azary, Z. (2008). Fraud detection and audit expectation gap: Empirical evidence from Iranian bankers, International Journal of Business and Management, 3(10), 65-77.
Securities and Exchange Commission (2000). Revision of the commission’s auditor independence requirements (Releases No. 33-79919). Washington DC, USA: Author.
Soyemi, K.A. and Olowookere, J.K. (2013). Determinants of External Audit Fees: Evidence from the Banking Sector in Nigeria. Research Journal of Finance and Accounting.
Zalata, A. M., Elzahar, H., McLaughlin, C., & Ntim, C. G. (2020). External audit quality and firms’ credit score. Cogent Business and Management, 7(1), 1–16.
