An analysis of audit fee determinants in Maltese non-profit organisations

Abstract

PURPOSE: This research seeks to elicit the significant audit fee determinants applicable to Maltese non-profit organisations and identify consistencies with international research on the subject. These determinants will also be compared to the determinants found to be significant in the local for-profit sector. Lastly, this research also aims to identify whether the audit fee charged by the local Big-4 audit firms on non-profit organisations’ audit incorporates a premium payment compared to their non-Big-4 counterparts. DESIGN: The GLM regression analysis is used to examine the effect of multiple independent variables in predicting the audit fees of non-profit organisations. To complement and substantiate this statistical analysis tool, semi-structured interviews were conducted with audit partners and non-profit audit client representatives. FINDINGS: Maltese non-profit organisations are charged significantly lower fees when compared to the fees charged to the for-profit companies. Indeed, some of the nonprofit organisations’ audits are even conducted for free. This study reports that the audit fee charged to the Maltese non-profit organisations is made-up of four main determinants. The audit fee is expected to increase as the amount of salaries and wages paid as well as total liabilities increase. Contrary to expectations, non-profit organisations having a December year-end are charged lower fees, which lower fee is followed by a lengthy audit delay. Non-profit organisations categorised within the category of health are charged the highest audit fees whereas non-profit organisations whose main aim is to aid people with special needs are charged the lowest fees. The audit fee does not seem to be influenced by the level of complexity within the Maltese non-profit organisations. Lastly, no evidence of Big-4 Firm premium was found in this study. CONCLUSIONS: It can be concluded that the audit fees charged differ depending on the characteristics of the sector as well as the country in which the non-profit organisation is located. VALUE: There is a paucity in audit fee non-profit research internationally whilst local audit fee research only extends to the for-profit sector. Therefore, this research should aid non-profit organisations in ensuring that the audit fee paid is reasonable and should also help audit firms justify the audit fee charged to their non-profit organisations clients.