A Circular Causality Analysis on the Determinants of the Audit Fees within the NYSE-Quoted Companies

Abstract

According to the International Standards on Auditing, audit fees are the amount that remunerates the financial auditor’s activity, the certification of financial statements. The Profession Code states that these fees should be calculated in an objective way and the auditor’s independence shouldn’t be influenced by them. This study aims to identify the determinants of the audit fees, by testing the existence of a circular causality in the connection between audit fees and the financial performance of a NYSE-quoted company. The analysis is based on a sample of the first 100 companies (NYSE quoted) of the Top 500 Fortune, except for the companies in the investment funds and insurances field. In the study there were tested and validated the following working hypothesis: “the level of the audit fees is mainly influenced by the company’s capacity to continue its activity”, “the prestige of the audited company contributes to the decrease of the audit fees” and “the reduced fees level, paid by the customer audited by one of the Big4 companies in this exercise, contributes to the future prestige increase”. For data analysis there were used linear regression analysis (simple and multiple) and the variance analysis (ANOVA). Research results indicate the existence of a circular causality, bidirectional, on the level of the relationship between audit fees and financial performance. For data processing, in the study there were used statistical software SPSS 19.0 and AMOS 16.0.