Audit fees and their determinants in the Maltese environment : an analysis

Abstract

The main objective of this study is to investigate factors influencing the amount of external audit fees in Malta. It aims at ascertaining whether client size, complexity and risk, also known as the 'traditional' determinants, are applicable to Malta. Of particular interest is the determination of specific factors relevant to the Maltese market. Finally the issue of premium pricing amongst the Big 4 (if any) is evaluated. A GLM regression model is used to examine the effect of the independent factors on the amount of audit fees for a sample of audit engagements performed in the Maltese audit market. The model is further complemented by a series of in-depth semi-structured interviews with audit partners from various audit firm sizes. The study's results indicate that the amount of external fees is significantly influenced mainly by the audit client size, complexity, risk, ownership control and corporate status. This research also provides evidence that there exist two significant market-specific factors, namely whether the company is government-owned and/or owned by foreign shareholders. Finally this study reports that Big 4 pricing incorporates a premium element when compared to mid-tier and small audit firms. This study is original, since it is the first to empirically investigate factors influencing the pricing of audit services in Malta.