The effect of audit firm structure on audit fees : further evidence from New Zealand

Abstract

Previous research has suggested that audit firm structure can explain a number of variations in audit fee profile. This thesis focuses on the efficiency effects of audit firm structure by examining the external audit fee charged by accounting firms. In response to the conflicting findings of Gist in 1994 and Kaplan et al. in 1990, the relationship between external audit fee and audit firm structure, and the relationship between external audit fee and the interaction between audit firm structure and client environmental stability were investigated.

Data for the study was obtained from the annual reports of 74 listed companies in New Zealand Stock Exchange, which were audited by one of the "Big Six" accounting firms.

The results indicate a significant relationship between external audit fee and the interaction between the structured audit approach and client environmental stability. The interaction between other audit firm structures (intermediate and unstructured approach) and client environmental stability and external audit fee were not found to be significant. Audit firm structure itself was not found to have a relationship with external audit fee. These results suggest that audit firm structure does not always provide cost advantages. They also provide some support for Kaplan et al.'s explanation of audit firm structure as a means of market differentiation.