Research Summary 20: Trends in Audit Fees

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.