Gary Giroux
Texas A&M University
Rowan Jones
University of Birmingham (U.K.)
Abstract: Audit economic relationships of UK local governments differ from US counterparts. The Audit Commission, a national public body under Parliament, regulates local governments of England and Wales. The Audit Commission sets audit standards, appoints the auditors, and establishes a formula to determine standard audit fees. The majority of audits are conducted by District Auditors (government employees now under the Audit Commission), although about 25% of local governments are audited by one of six private auditors (including three of the Big 4). The purpose of this paper is to model and test the audit fee structure of these local governments, with particular interest in fees charged by private auditors. Regression results for fiscal year 2000/01 have high explanatory power and work well to explain fee differences. Model relationships are somewhat different than US counterparts and type of district partially explains fee differences. The most interesting finding is that Big 4 audit fees are significantly lower than fees charged by District Auditors, while small private firms charge significantly higher fees. Several possible reasons are suggested.
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