Determining audit fees: evidence from the Egyptian stock market

Abstract

Purpose This paper aims to empirically examine the determinants affecting audit fees in the Egyptian context concerning different organizational forms and governance mechanisms. Design/methodology/approach This study adopts financial and non-financial data from 62 Egyptian firms listed on the Egyptian Stock Exchange from 2015 to 2020. The proposed audit fees model is developed by adopting panel data analysis to examine the effect of auditee, auditor and engagement attributes on audit fees. The validity of the proposed equation for determining audit fees on an annual basis was established by applying the fixed effect model results for the year 2020. Findings The results revealed that the most significant determinants that affect audit fees are liquidity, audit committee independence, audit report lag and the status of the audit firm. Audit fees of 95.7% are determined by these factors. The validation test proved that the proposed model was more accurate and closer to the estimated data at nearly 90.2%. Practical implications The results of this paper would send early signals to audit firms, stakeholders and regulators regarding the determinants of audit fees, and provide an objective standard for fee-setting to be used by stock market regulators and professional bodies, in determining a minimum amount of audit fees that ensure a reasonable level of audit quality. Originality/value To the best of the authors’ knowledge, for the first time, this paper empirically examines the determinants of audit fees in an emerging market like Egypt and presents evidence for a period of six years.