The effect of audit inspections on audit fees

Abstract

Purpose The purpose of this study is to examine the cost of the introduction of independent audit inspections in New Zealand. Design/methodology/approach The research is conducted using audit fee data from New Zealand and examines the overall impact of the reforms on the cost imposed on auditees. Findings The findings show that there was no general increase in audit fees but a significant increase in audit fees for small listed companies compared to audit fees for unlisted companies and large listed companies. Practical implications The practical implications of this study suggest that the introduction of independent inspections led to increased costs for some clients, particularly smaller listed companies, and that audit firms were able to pass on these costs to their clients. These results have important implications for policymakers and auditors alike. Originality/value This study provides new insights into the cost of the introduction of independent audit inspections, which have been the subject of ongoing criticisms and recommendations for improvement.