The determinants of audit fees in the Alternative Investment Market (AIM)

The Alternative Investment Market (AIM), a junior market for small and medium sized companies with relaxed admission rules, reduced regulation and great variety of corporate governance practices, provides a unique opportunity to examine audit market issues for small and medium sized companies and to ascertain whether corporate governance factors especially audit committee characteristics influence audit pricing. This study seeks to address this gap by investigating the determinants of audit fees for a large sample of companies listed on AIM during the 2009/2010 financial year. The findings from the multivariate analysis show that audit fees for AIM companies are positively influenced by audit client size, audit client complexity and audit risk, London auditor, the audit report lag time, the auditing process happening in the busy season, and the joint provision of non-audit services. Moreover, the study documents that auditor size is a key determinant of audit fees on AIM, with Big 4 auditors charging a fee premium and smaller auditors charging significantly lower fees. [Continues.]