The effects of IFRS adoption and firm size on audit fees in financial institutions in Ghana
Date
2019-09-29
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Accounting Research Journal
Abstract
Purpose – This study aims to investigate the effects of international financial reporting standards (IFRS)
adoption and firm size on auditors’ fees determination in the Ghanaian financial industry.
Design/methodology/approach – The authors use the annual report of 52 listed and non-listed firms
spanning from 2003 to 2014. Guided by the hypotheses, the authors conditioned audit fees on IFRS adoption
and firm size and execute robust fixed effects panel regression.
Findings – The results show that IFRS adoption has a positive coefficient with audit fees suggesting that
the adoption of IFRS, indeed, increases the audit fees paid by banks and insurance firms, as well as the
industry as a whole. The results are consistent with the idea that IFRS adoption increases auditor efforts with
respect to time and complex nature of some aspect of the standards. Again, as expected, the coefficient of size
is positively and significantly related to audit fees. This indicates that the size of the auditee plays a vital role
in determining audit fees.
Research limitations/implications – The study is limited by industry (i.e. the financial services
industry) and geography (i.e. Ghana). The authors propose further research that will widely consider other
sectors and countries to improve the current scanty literature in this area. Besides, theoretically, the study is
limited to the lending credibility theory and feels compelled to reiterate the importance of considering
alternative theoretical perspective(s) in future research.
Practical implications – This study is significant to practitioners as it demonstrates the importance of
the determinants of the auditors’ fees. It helps auditors to apply the relevant charging formula when
determining audit fees, while it helps managers to improve upon the quality of reporting to control audit bill
and forecasting their audit expenditure.
Originality/value – The results of the study extend the literature on the cost side of IFRS adoption by
investigating the financial services industry and non-listed firms in a new context, i.e. a developing country
where this research is uncharted. The existing studies based their analysis on either cross-section or pooled
analysis and shorter post-adoption period (Cameran and Perotti, 2014). However, using an extended postadoption
period data, the authors base the study on analytical panel model, which directly examine the cost
side of IFRS adoption with size as joint key explanatory variables with emphasis on financial institutions and
external auditors.
Description
Research Article
Keywords
Audit fees, IFRS adoption, financial institutions, Ghana