The determinants of audit fees for SMEs in Malaysia and implications of MIA guidelines
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Date
2005
Authors
Mohd Nizam bin Kasim
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Abstract
To date, there has been little work done on developing countries especially issues on auditor independence, audit quality, audit delays, and audit fee determinants. Even more scarce is studies on audit and Small and Medium Enterprises (SMEs). As such, this paper is to address this imbalance by having a closer look on audit fee determination of SMEs in Malaysia. The main objective of this paper is to examine the determinants of audit fees that had been charged to SMEs. Factors that are hypothesized to have significant influences on audit fees are auditee’s size, auditee’s complexity, auditee’s risk, auditee’s profitability, and auditor’s busy period. Furthermore, this study also seeks to determine whether audit firms are following the benchmark that has been set by Malaysian Institute of Accountants (MIA) in charging their clients. Multiple regression analysis was used to analyze data from annual reports of 70 SMEs in Malaysia for the years 2001 and 2002. The main finding of this study is that only auditee’s size has a significant impact in the determination of audit fees for SMEs organizations for the both years studied. There was no strong evidence to support auditee’s risk, auditee’s complexity, auditee’s profitability, and seasonality having any relationship with audit fees. In addition, results also show that only one-third of auditors charged their clients lower than the minimum charges recommended by MIA. This paper extends the theory of audit fee determination by providing further insight into the factors that determine audit fees charged to SMEs. In addition, this study also contributes to practitioners such as audit firms, firms, and regulatory bodies in gauging whether MIA benchmarks have been adhered to by audit firms.
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Keywords
Business Administration , Audit Fees , MIA Guidelines