Audit Fees Determinants and Audit Quality in Ethiopian Commercial Banks
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Date
2014-05
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Addis Ababa University
Abstract
The audit profession has been highly scrutinized among researchers and regulators
following the fall of giant companies in the West. One of the issues that gained
momentum has been to analyze the audit fee structure and the various auditor-client
relationships. This study investigates the determinants of audit fees based on
variables that are unique to the banking firms and considered important by regulators
in a sample of Ethiopian commercial banks. The study also examined whether
auditors take in to account factors considered important by the regulatory bank which
result in better alignment of both the interests of auditors and the regulatory bank.
Furthermore, the study investigates whether abnormally higher audit fees reduce the
audit quality. The study used a panel data for eight commercial banks form the year
2004-2012. The panel fixed effect regression result revealed that bank size, liquidity,
efficiency, loan growth, capital adequacy and auditor size are the main determinants
of audit fees for the Ethiopian commercial banks. With regard to the factors
considered important by the regulatory bank, auditors do not seem to consider credit
risk in the determination of audit fees. In relation to the audit quality, the study failed
to find any significant relationship between the extent of earning management
through Loan Loss Provision and abnormal audit fees. This leads to conclude that
auditors do not seem to compromise audit quality for the sake of securing abnormally
higher audit fees. The researcher recommends auditors to further align their audit fee
valuation with the interests of the regulatory bank particularly in respect of credit
risk.
Key words: audit fees, regulatory risks, audit quality, earning management, Loan Loss
Provision
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Keywords
Audit fees, Regulatory risks, Audit quality, Earning management, Loan loss Provision