The impact of audit quality reviews on audit fees of New Zealand listed companies

Abstract

This study examines the impact of audit quality reviews by the Financial Markets Authority (FMA) on the audit fees of New Zealand listed companies. The FMA commenced audit quality reviews in 2013. This study examines audit fees from 2009 to 2016 and compares audit fees over the three years before and the four years after quality reviews began. We find evidence of significantly higher audit fees for smaller listed companies after the introduction of audit quality reviews, with minimal impact for larger companies. The New Zealand results suggest that increased costs associated with regulation were able to be absorbed by audit firms in respect of their larger audit clients but not their smaller clients. This may be a reflection of the small and concentrated audit market for listed companies in New Zealand. In conclusion, the introduction of mandatory audit quality reviews has had greater economic consequences for smaller listed companies, which have experienced a significant increase in audit fees.