The Association between Audit Committees and Audit Fees in the Public Sector

Abstract

This study examines the association between the existence of an audit committee and audit fees. We adapt the model in Griffin et al. and include an interaction term to capture possible joint countervailing effects between the audit committee and audit risk. The sample comprises New Zealand public sector entities for the period 1998–2000, when audit committee formation was voluntary. For profit‐oriented public sector entities there is a positive association between audit committees and audit fees but no significant interaction terms. For public‐benefit entities, audit committees are associated with lower audit fees and interact with audit risk. The results are consistent with audit committees being a more important mechanism for public‐benefit entities.

Keywords: audit fee, audit committee, audit risk, public sector auditing