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Audit Fees and Nonaudit Fees in the Governmental Sector: A Self-Selection Analysis

Research in Government and Nonprofit Accounting, Vol. 10, pp. 65-86, 1999

22 Pages Posted: 9 Mar 2004  

Randal J. Elder

Syracuse University

Susan C. Kattelus

Eastern Michigan University

Edward B. Douthett Jr.

George Mason University - School of Business

Abstract

We use a self-selection model to examine differences in audit fees between purchasers and non-purchasers of nonaudit services for a sample of 165 Michigan governmental units. Understanding the relationship between audit fees and nonaudit fees is important because nonaudit services potentially influence audit quality in the governmental sector. We find significant differences between purchasers and non-purchasers of additional services which influence audit fees. Purchasers of additional services have more audit adjustments and less experienced financial personnel than non-purchasers, suggesting that purchasers experience more accounting problems. Consistent with previous private sector research, we find a positive relationship between audit fees and nonaudit fees. Further analysis by auditor type suggests that the relationship between audit fees and nonaudit fees is negative for Big 6 auditors, but positive for other audit firms. This difference in the relationship between audit fees and nonaudit fees by auditor type may be due to differences in the nature of the consulting services demanded, or differences in the contractual arrangements for audit and nonaudit services.

Keywords: Audit fees, nonaudit services, governmental sector, self-selection.

JEL Classification: M40, M41, M49, H70

Suggested Citation

Elder, Randal J. and Kattelus, Susan C. and Douthett, Edward B., Audit Fees and Nonaudit Fees in the Governmental Sector: A Self-Selection Analysis. Research in Government and Nonprofit Accounting, Vol. 10, pp. 65-86, 1999. Available at SSRN: https://ssrn.com/abstract=2847

Randy Elder (Contact Author)

Syracuse University ( email )

900 S. Crouse Avenue
School of Management Department of Accounting
Syracuse, NY 13244
United States
315-443-3359 (Phone)
315-443-5457 (Fax)

Susan C. Kattelus

Eastern Michigan University ( email )

Eastern Michigan University
Ypsilanti, MI 48197
United States

Edward B. Douthett Jr.

George Mason University - School of Business ( email )

Fairfax, VA
United States
703-993-4234 (Phone)

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