ave audit fees increased, decreased or remained
relatively steady? The question is not new—researchers have examined
trends in audit fees but have restricted their studies to only a few
years. This has resulted in a limited view. In our study we expanded
the horizon, examining audit fee trends over an eighteen-year
period—from 1980 to 1997. Our data comprised voluntarily disclosed
audit fees from 249 firms audited by what was then the Big 8. After
controlling for client size, complexity and risk, and for audit wage
rate and general price-level changes, we concluded that audit fees in
the period between 1983 and 1989 were significantly higher than in
1980, but fees in the 1990s were not appreciably different from 1980
levels overall.
Our study shed light on how professional standards and firm mergers affected trends in fees. For instance, we found audit fees in 1988 spiked after the AICPA’s Auditing Standards Board released the “expectation gap” standards—10 standards that expanded auditors’ responsibilities to encompass the evaluation of a client’s internal controls, disclosure of early warnings of a client’s ability to continue as a going concern and detection of fraud. The standards increased the scope of audit work and jacked up the number of billable hours. In addition, our study showed that following the 1989 large firm mergers, fees rose only briefly, suggesting that such mergers had no long-term effect on audit pricing.
For the full text of the research paper, see “Long-Term Trends in
Audit Fees,” Auditing: A Journal of Practice & Theory,
March 2001, vol. 20, no 1.
KRISHNAGOPAL MENON, PhD, is professor of accounting, Boston University. His e-mail address is kmenon@bu.edu . DAVID D. WILLIAMS, CPA, PhD, is associate professor of accounting and MIS, Fisher College of Business, Ohio State University, Columbus.
This series is based on work published in Auditing: A Journal of Practice & Theory. The intent is to bridge the gap between researchers and practitioners by offering concise practice summaries of cutting-edge research in the field of auditing.