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Meshari O. Al-Hajri
65
SBE, Vol.20, No.1, 2017
ISSN 1818-1228
©Copyright 2017/College of Business and Economics,
Qatar University
While the relationship between audit fees
and both client’s profitability and liquidity is
expected to be negative, it is expected to be
positive with client’s financial leverage
3
.
Test variable
As indicated, the current study is interesting
mainly at examining whether IA contribution
in the external audit work affects the amount
of external audit fees. The IA variable is added
to the research model to examine this research
question. Similar to prior related research
(Felix
et al
., 2001), this variable is measured as
external auditor’s assessment of the percentage
(from 0% to 100%) of external audit work
performed by the client’s internal audit staff.
If IA contribution is positively (negatively)
related to the amount of external audit fees,
we would expect this variable’s regression
coefficient to show a positive (negative) sign.
IV.
RESULTS AND ANALYSIS
Descriptive statistics:
Panel A of Table 1 demonstrates the
descriptive statistics related to the study’s
variables. As shown, the mean total assets
of the audited firms included in the sample
is KD123,698,961, ranging from as low as
KD301,441 to KD772,016,000. The mean of
the external audit fees for the study’s sample
is about KD4,854. Table 1 also shows that
audited firms included in the sample has a
mean quick ratio of 2.48, a financial leverage
of 0.25 and a mean ROA of -0.6. Panel A of
Table 1 also shows that, on average, the audit
firms of the sampled firms were tenured for
about 2.4 years. This table also shows that, on
average, internal auditors contributed in about
28 percent of the external audit work in the
sample of audit engagements. Panel B of Table
3 Some related studies, however, produced mixed results
and conclusions about the relationship between audit fees
and client’s liquidity and profitability ratios.
1 shows some statistics about the categorical
variables included in the research model. As
shown from this section of Table 1, external
audit firms concurrently provided non-audit
services in only 11 percent of the sample of
audit engagements, while providing only
audit services in about 89 percent of the audit
engagements. Panel B in Table 1 also shows
that 40 percent of sample of audit engagements
were performed by one of the Big4 audit firms,
while the rest were performed by non-Big4
audit firms.
Table 2 shows the Pearson correlations among
the study’s independent variables. As shown in
this table, the correlations among the study’s
independent variables are not substantially
high, with the highest correlation coefficient
value less than 0.60. However, and to check
for any possibility of multicollinearity among
the study’s independent variables, the Variance
Inflation Factors (VIF) were computed, and are
shown in Table 3. As the results demonstrate,
the highest VIF value reported equals 2.543,
which is less than the critical value of 10 (Neter
et al
., 1983). Hence, multicollinearity does not
appear to be a problem in this case.
Empirical Results:
Table 3 shows the results of the audit fees
regression model of the current study. As
indicated, this regression model regresses the
natural log of the total amount of external audit
fees (FEE) on ameasure of IAcontribution in the
external audit work (IA), in addition to proxies
for client's size (SIZE), client's complexity
(LOCATE), client liquidity (QUICK),
client's financial leverage (LEVER), client’s
profitability (ROA), concurrent provision of
non-audit services (NAS), external auditor’s
type (BIG4), and audit firm’s tenure in years
(TENURE). As Table 3 shows, the model is
significant with F-statistic of 3.244 (p-value <
.000), and R-square of about 0.54.