An Investigation into the Audit Fee Determinants of the U.S. Federal Government

• In Event: 2.02 Government Research Concurrent Session: Governance/Audit

Abstract

In this paper, we create an OLS model to explain the audit fees of US federal government agencies. We examine determinants used in traditional models from publicly traded firms, municipal governments, and other public sector organizations. We start with an extensive list of variables and narrow the list down using the forward stepwise selection method. The model reveals that size and complexity factors are most significant in determining audit fees of federal agencies and that that the risks for public auditors in this space have yet to be defined. We also control for unobservable year and agency variation with the addition of fixed-effects, and we find significant incremental explanatory power. However, the addition of agency fixed-effects leaves few other explanatory variables with statistically significant coefficients. These results suggest that model variables from extant studies do not fully explain US federal agency audit fees, and much remains to be understood. Our paper serves as an origination point to inform future research of an increasingly relevant topic.

Authors

• Nicholas LSU Mitchell, Louisiana State University

• Kenneth J Reichelt, Louisiana State University

• Laura Alford, Louisiana State University