Determinants of Audit Fee in Pakistan

Abstract

Audit fee studies, being a tool to assist negotiation between auditors and clients are regularly undertaken all over the world and essentially stem on the factors prevalent in the specific auditing/accounting environments. Unfortunately, Pakistan has been less explored in this regard with only two studies being conducted focusing its market. Both the studies used a single year data for analyses and were conducted in a less regulated environment than presently prevalent in Pakistan.  After the establishment of SECP and regulatory changes in corporate sector, no such study has been conducted in Pakistan. Using the Simunic (1980) model, this study reveals that client’s size of business, complexity of business and international recognition and affiliation of audit firms (Big four firms) are significant determinants of audit fee in Pakistan. Results in study indicate that ignorance of risk factor by the auditors may pose serious threat to fame and reputation of audit firm along with indication of feeble legal regime in Pakistan.

Keywords: Audit fee, client’s size of business, audit complexity, audit risk, big firm