| Summary: | The market for audit services has dramatically changed over the last couple of years
and quality is more of a driver than ever before. Audits are, and will continue to be,
driven by new regulatory actions and international changes in accounting standards.
There has been a convergence of different standards into one set of global standards
that are being adopted by most countries worldwide.
The introduction of more robust professional standards, legislation and regulation
had a significant impact on the audit profession, which came in the wake of corporate
and audit failures and resulted in negative perceptions about auditors and the
profession as a whole.
The purpose of the research is to determine whether a correlation exists between
audit costs and company specific financial variables and to identify and quantify the
impact of recent changes in regulatory and statutory requirements on audit fees. The
intention is to understand the impact the above has on audit fees, if any, and to apply
this understanding in fee discussions in future. Primary and secondary forces
impacting on the profession will be identified in this study as ancillary objectives.
The study embraced the following aspects: • A literature study of the international environment • A literature study of the local environment • Empirical research by means of multiple regression analysis
The findings of the literature study were used to identify crucial aspects of the impact
of statutory and regulatory requirements in the audit fees of JSE listed companies.
The results have shown that the impact was significant and that the international
market also experienced this impact. The changes to the accounting and auditing
standards have unquestionably had an influence on audit fees of JSE listed
companies as well as companies listed on the main bourses of the world. The
literature study revealed that the transition to the new standards will have and have
had a colossal impact locally and globally. An accurate assessment will be possible
in the post-mortem and the financial impact should also be measurable in the
2006/07 reporting cycle.
The empirical study endorsed the use of a multiple regression model to analyse audit
fees of companies. It has confirmed findings from earlier research and proved that
regression analysis can be used in different countries and on different exchanges to
determine whether a correlation exists between audit costs and company specific
financial variables. The researcher found that the multiple regression model held to a
100% significance and is of the opinion that it can be used in future to forecast and
determine audit fees. It also validates that the growth in audit fees is expected and
should not be surprising.
The method of multiple regression analysis to model audit fees in the South African
environment can contribute a considerable amount to the overall understanding and
interpretation of audit fees for both auditors and audit clients. The researcher is of the
opinion that the application of such a model in practice will assist in agreeing on audit
fees that are reasonable, recoverable and sustainable. The multiple regression
analysis and regression model has not convinced the author that a "one-size-fits-all"
approach is the route to take. Every audit is unique and should be approached in this
manner. The application of a regression model can assist in providing guidelines for
audit fees.
Audit fees have been a contentious issue for many years and will continue to be a
debatable topic in future. The perception that audit firms are charging too high fees
and are realising abnormal profits will continue to exist. The plea from audit firms to
their clients to help improve the recovery on audit engagements will also be
pervasive in future. The market forces at play, such as new pronouncements, skills
shortages and globalisation will further exacerbate the pressures on audit fees. === Thesis (M.B.A.)--North-West University, Potchefstroom Campus, 2007.
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