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THE DETERMINANTS OF AUDIT FEE IN QUOTED FIRM IN THE NIGERIAN STOCK EXCHANGE

CHAPTER ONE

INTRODUCTION

BACKGROUND TO THE STUDY

The market for audit services has been recognize to be segmented into varying sub-markets or sub-sectors of an economy. Empirical researchers have shown that the concentration has been as the private sector market than in the public sector. Prices paid to the external auditors for audit services differ significantly from that of the public sector. The basis of determining these fees the statutory auditors receive from client organization has continued to attract the attention of researcher especially in developing countries such as Nigeria. The empirical findings obtained this far as regard the determinants of audit fees in developed economies have been mixed while the use of some variables have yielded positive correlations, others have rather remained inconclusive(Cobbin,2002). Basically, the essence of studying the determinants of audit fees is to enhance or maximize shareholders wealth. This is because audit fees paid by firms to external auditors for auditing the annual financial statements, no doubt constitute a major expenditure; certainly such expenditure does not increase the value of shareholders directly from empirical findings.

The day to day running of the affairs of a business entity no doubt is very much based on true relationship between the resource owners (shareholders) and managements. The owners put their trust on the management with a view to increasing wealth and preserving the continuity of the business. The true reflection of the affairs of the organization is always made known through the audited financial report. Usually, the nature of the work to be performed by an external auditor will determine the audit fees charge the client firm. The understanding of audit fee determination is pertinent to suppliers and customers of the audit services industry (Che–Ahmad &Houghton, 1996). Similarly, the pricing of these fees is very vital to market regulators. Prior studies have shown audit services might not be priced competitively due to high concentration of the number of accounting firms (Che-Ahmad & Houghton, 1996). Most of the studies conducted on audit fees determinants have majorly been in developed countries of the world (Simon, Teo & Trompeter, 1992).

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