Determinants of External Audit Fees: Evidence from the Banking Sector in Nigeria

Abstract

Studies abound on market structures for audit services in developed economies of the USA, UK, Canada and Australia with abysmal very few on the African continent. Across these studies is the continuous trend of exclusion of the financial sector. This study seeks to provide empirical examination of client attributes which significantly explain variations in the amount of external audit fees charged by bank auditors in Nigeria. A standard audit fee model, modified accordingly, is used to investigate the specific effect of bank size, risks and complexities on audit fees for top ten (10) publicly quoted commercial banks, which constitute over 70% of the total assets of the industry. Multiple OLS regression was adopted as the estimation technique on the panel data gathered through content analysis of annual reports and accounts of these banks over a 4-year post consolidation periods covering 2009-2012. The findings from this study reveal that bank size is also an important factor that is priced by bank auditors having shown a positive and significant influence accounting for 63% variations. Risk proxied by capital adequacy and non performing loans ratios was insignificant but positive and negative respectively; while only the number of branches used to operationalise complexities associated with bank audit displayed a negative and significant influence. The massive deployment of Information Technology (IT) in the industry, especially for the rendering of returns by branches of these banks to their head offices could account for this result.

Keywords: Audit fees, External audit, Banking sector, Nigeria.