New Zealand audit and non-audit fees: Have fees risen since the passage of SOX and the introduction of IFRS?

Paul Griffin
University of California, Davis
USA

David Lont
University of Otago
New Zealand

Yuan Sun
University of Otago
New Zealand

Abstract:
This study analyzes 2003-2006 New Zealand audit fees and non-audit fees to examine (1) whether New Zealand audit fees have increased in recent years, possibly in response to stricter governance rules and the adoption of international financial reporting standards (IFRS), and (2) whether New Zealand non-audit have fees decreased, possibly in response to stricter rules for auditor independence.

While audit fees have risen substantially in the United States in response to the Sarbanes-Oxley Act (SOX) and related regulations, it is unclear whether such reforms should have a major impact on the
New Zealand audit market. We would expect New Zealand audit fees to rise, however, following the local reforms implemented after SOX, such as the governance requirements passed by the New
Zealand Stock Exchange in 2004 and the adoption of IFRS in 2005.
After controlling for client size, complexity, and risk, we document that the audit fees paid by New Zealand companies have generally increased over 2003-2006, consistent with stricter governance rules
and IFRS; whereas clients’ non-audit fees have generally decreased over the same period, consistent with stricter independence requirements. These fee effects are also most pronounced for Big 4 firms, which economically comprise most of the audit market. Our findings are best explained by the New Zealand governance and accounting reforms implemented after SOX, and not by SOX itself or similar overseas governance regulations.