ABSTRACT
This chapter discusses the determination of audit fees, including identification of determinants of the audit fees from both audit costs and auditor competition perspectives. Audit fees are an integral part of the audit function. The rules of the professional conducts require that accountants must charge adequate fees for their services. Furthermore, the accounting firms need to charge sufficient fees to facilitate professional development, support the firm operations, upgrade audit technology, and compensate employees. The data on audit fees paid by public companies became widely available since 2002 because of the amendment to the Securities Exchange Act of 1934. Auditors’ pricing consideration is not directly observable; consequently, it is difficult to know the respective sizes of the mentioned three fee components: direct costs, indirect costs, and rents. The accounting for certain components in financial statements is complex and demands significant care and judgment.
