Audit pricing in the banking industry

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School of Business | Master's thesis
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The aim of this study is to solve, what are the determinants of audit fees in the banking industry. I focus especially on risk factors affecting audit fees of banks, auditor specialization, and non-audit fees' effects on audit fees. I am also interested how the financial crisis (2008) has affected the fees and if there are differences between different types of banks. The research is a quantitative research in its nature, and it has executed by collecting data of banks' financial statements and audit fees from several different databases to analyze the associations between audit fees and the factors developed in this paper. The data consist of 4088 firm-year observations of US bank holding companies (437 unique banks) and cover years 2001-2013. I used a linear regression model to analyze the data, mostly reproduced from Fields et al. (2004) investigation of audit pricing for financial institutions. Consistent with prior studies, my results indicate that audit fees are higher for banks with bigger assets, with more intangible assets, if a bank is audited by Big4 auditor, if the company is less efficient, and if it has reported losses during the year. All the variables indicating different risk components of the bank, excluding the credit risk, are also in a positive relation with audit fees as expected. Moreover, non-audit fees have decreasing effect on audit fees. Variables indicating auditor specialization to the banking industry have different effect on audit fees as expected and auditors with higher market share are able to charge higher audit fees. Further, comparative analysis reveals that there are some differences between commercial banks and savings banks, and auditors take the savings banks' risk into account in their pricing and charge higher audit fees from savings banks in general. Financial crisis has also affected on audit fees, but the sign of the effect remains unclear.
Audit fees, Financial Crisis, Audit Pricing, Banking, Bank Holding Companies