Variables and measurements applied
| Variable | Type | Code | Measurement | Primary source of data | Expected relationship with audit fees |
|---|---|---|---|---|---|
| Current year audit fees | Dependent | CYFEE | Current year audit fees charged to the client (Log10) | IRESS Expert database | |
| Audit firm tenure | Independent | TENURE | (0, 1) variable where (1) if audit firm tenure is three years or less | Annual financial statement | Not significant |
| COVID-19 extension | Independent | COVID19 | (0, 1) variable where (1) if the company qualified for the FSCA1 extension (i.e. January 2020 to July 2020 financial year-ends) | IRESS Expert database | Positive |
| Total assets | Control | ASSETS | Total assets at year-end (Log10) | IRESS Expert database | Positive |
| Ratio of inventory and receivables to total assets | Control | INVREC | (Inventories + receivables)/total assets | IRESS Expert database | Positive |
| Audit report lag | Control | LAG | Number of days between the financial year-end and the audit opinion (Log10) | Annual financial statement | Positive |
| Busy season | Control | BUSY | (0, 1) variable where (1) if year-end is in the busy season (June and December) | IRESS Expert database | Positive |
| Return on assets | Control | ROA | Non-financial companies = EBIT2/total assets (winsorised) Financial companies = profit before tax/total assets (winsorised) | IRESS Expert database | Negative |
| The presence of a dominant audit firm | Control | BIG4 | (0, 1) variable where (1) if the auditor is a Big 4 auditor | Annual financial statement | Positive |
| Variable | Type | Code | Measurement | Primary source of data | Expected relationship with audit fees |
|---|---|---|---|---|---|
| Current year audit fees | Dependent | CYFEE | Current year audit fees charged to the client (Log10) | IRESS Expert database | |
| Audit firm tenure | Independent | TENURE | (0, 1) variable where (1) if audit firm tenure is three years or less | Annual financial statement | Not significant |
| COVID-19 extension | Independent | COVID19 | (0, 1) variable where (1) if the company qualified for the FSCA | IRESS Expert database | Positive |
| Total assets | Control | ASSETS | Total assets at year-end (Log10) | IRESS Expert database | Positive |
| Ratio of inventory and receivables to total assets | Control | INVREC | (Inventories + receivables)/total assets | IRESS Expert database | Positive |
| Audit report lag | Control | LAG | Number of days between the financial year-end and the audit opinion (Log10) | Annual financial statement | Positive |
| Busy season | Control | BUSY | (0, 1) variable where (1) if year-end is in the busy season (June and December) | IRESS Expert database | Positive |
| Return on assets | Control | ROA | Non-financial companies = EBIT | IRESS Expert database | Negative |
| The presence of a dominant audit firm | Control | BIG4 | (0, 1) variable where (1) if the auditor is a Big 4 auditor | Annual financial statement | Positive |
Note(s): 1FSCA is defined as the Financial Sector Conduct Authority of South Africa
EBIT is defined as earnings before interest and tax
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