Audit fee determinants in small municipalities: Further evidence from Connecticut small towns

Guided by a call for research on small entities using innovative methodologies, this study is the first to analyse small municipality audit fees on a per capita basis. The research utilises a complete dataset of all 92 Connecticut municipalities that meet the study criteria and does not rely on samples or survey results. The measure of per capita was utilised to account for differences between town populations allowing for a more accurate comparison of audit fees and audit fee determinants across municipalities of differing populations. Consistent with the premise that auditee characteristics are an important consideration in audit fees, we find that when examining audit fees on a per capita basis in the subset of small municipalities: (1) smaller towns pay considerably more for audit services than larger towns, (2) towns with an ethics committee oversight function and best practices financial reporting practices have lower per capita audit fees than those that do not and (3) audit firm size, audit firm tenure and existence of audit/finance committee oversight have no significant impact on per capita audit fees. The results of this study help fill a void in the audit literature by providing insights into audit fee determinants in small municipalities by considering the added feature of a per capita analysis. The authors also sought to provide additional information for consideration in the International Auditing and Assurance Standards Board (IAASB) efforts to streamline standards for auditing of less complex entities.