A Study of Audit Fee Determinants in Relation to Client Size, Risk, and Complexity Factors

Posted: Aug 20, 2021

• Theo Watson
• Emilia Cruz
• Vera Douglas

Abstract

The determination of audit fees represents a critical intersection of accounting practice, regulatory compliance, and economic theory. Traditional models of audit fee determination have predominantly focused on client size, measured through metrics such as total assets and revenue, alongside basic risk indicators including leverage ratios and profitability measures. However, the evolving business landscape characterized by digital transformation, global supply chains, and regulatory complexity suggests that these conventional factors may no longer sufficiently capture the multidimensional nature of audit engagements. This research introduces a novel framework that expands the understanding of audit fee determinants by incorporating computational complexity theory and network analysis into the assessment of client characteristics. Contemporary organizations operate within increasingly intricate ecosystems where digital interfaces, automated processes, and interconnected systems create novel challenges for audit professionals. The conventional paradigm of audit fee determination, largely established in an era of predominantly physical assets and straightforward transactional relationships, requires substantial revision to accommodate the realities of modern business operations. Our research addresses this gap by developing a comprehensive complexity scoring system that quantifies organizational intricacy through multiple dimensions beyond traditional financial metrics.