AUDIT FEES – VOLUNTARY DISCLOSURES AND PRICING STRUCTURE: AN EMPIRICAL STUDY IN SINGAPORE

Abstract

In light of heightened attention on the independence of the audit profession in recent years, this study seeks to examine one main aspect of the auditor-client relationship – audit fees. Using a sample of 3,665 companies listed on the Singapore Exchange from financial year 2004 to 2010, this study explores the factors affecting voluntary audit fees disclosures. Construction of probit regression models documents that factors such as shareholding structure, board independence, capital structure, audit opinion and auditor identity influence voluntary audit fees disclosures. In addition, this study finds that companies which provide voluntary audit fees disclosures (disclosers) are associated with higher earnings response coefficients than non-disclosers. This confirms the proposition that voluntary audit fees disclosures improve the perceived credibility of the financial statements and are value relevant to the capital markets. This study also provides an up-to-date overview of the factors affecting the level of audit fees in Singapore. Using ordinary least square regressions on 1,078 observations, this thesis finds that provision of non-audit services and issuance of unqualified audit opinions are associated with lower level of audit fees. However, this thesis finds no evidence that large shareholders, board independence and presence of internal audit function affect the amount of audit fees. Other well-established factors such as auditee size, complexity, profitability and the size of the audit firm remain significant in the context of this thesis.