He determinants of audit fees for companies in Vietnam

Al-Hajeri (2013), Simunic (1980), Chan, Ezzamel and Gwilliam (1993). It can be explained that to minimize the detected risk and achieve the audit objectives, the auditors have to go to every subsidiary, branch, associate, affiliate and joint venture of the company to conduct the audit. And this will definitely cost many audit tasks, much au- dit time and costs in the audit process. There- fore, this may be one of the reasons why audit companies have to consider auditee complexity when determining the audit fee for public com- panies in Vietnam. The research results demonstrate that the to- tal receivables and inventories divided by total assets influence the audit fee insignificantly, so hypothesis H3, which assumes that if the com- pany’s total receivables and inventories divid- ed by total assets are larger, the audit fee will Table 4: Regression result Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta (Constant) 13.738 1.376 9.985 0.000 SIZE 0.153 0.052 0.316 2.923 0.005 COMPLX 0.055 0.017 0.350 3.283 0.002 REC&INV 0.105 0.237 0.043 0.443 0.660 LIABI 0.042 0.238 0.018 0.176 0.861 OPINION 0.060 0.190 0.030 0.313 0.756 SECTO -0.113 0.123 -0.089 -0.919 0.362 ROE -0.169 0.253 -0.071 -0.666 0.508 LOSS -0.050 0.137 -0.037 -0.366 0.715 BIG4 0.596 0.282 0.219 2.118 0.038 LAG 0.003 0.003 0.092 0.906 0.368 Journal of Economics and Development Vol. 19, No.2, August 201783 be higher, is rejected. This result is similar to the research of Yidi Xu (2011) and Wang, O. and Chu (2013). And the reason for this result is that the auditors may not consider the re- ceivables and inventories as two complicated accounts to audit. Based on Yidi Xu (2011), re- ceivables and inventories are usually used for earning management and are easier to manipu- late by managers because the judgment of man- agers could have a large impact on the value of these two accounts as fair value or realizable value. Therefore, these accounts become unre- liable and in order to decrease the audit risk, prudent auditors would choose not to rely on this ratio to determine the audit risk that in turn influences the audit fee. Similarly, based on the significance level (Sig.), the total liabilities divided by total as- sets influences the audit fee insignificantly and this is why hypothesis H4 is rejected. As a matter of fact, this result is contrary to the authors’ expectation, because in reality, when the company has a high leverage ratio, it would be the motivation for managers to manipulate their financial statements to impress the debt- ors and avoid debt covenant violation. This would lead the audit risk to increase and thus the audit fee. Nevertheless, based on the data in Vietnam, this result is not suitable for the above explanation from the agency theory and also is different from most of the prior researches. The audit opinion is also one of the factors influencing the audit fee insignificantly based on the research result of the significance level (Sig.), so hypothesis H5 is rejected. This result is similar to many previous researches such as Vakilifard, Ebrahimi, Sadri, Davoodi and Al- lahyari (2014), Yidi Xu (2011), Wang, O. and Chu (2013). The main reason for this result is because the audit opinion in the audit report is expressed after the audit contract is signed. This means after determining the audit fee and signing the audit contract with the auditee, the audit company conducts the audit process and after that, the auditors express the audit opin- ion in the audit report. Moreover, because of the intense competition among audit compa- nies, although the business and financial risk of the auditee may be high, some audit compa- nies have the tendency towards the unqualified audit opinion when signing a contract with the auditee because they do not want to lose cus- tomers. That is why somehow the audit fee is not affected significantly by the audit opinion. Hypothesis H6, which assumes that if a com- pany operates in the real estate sector, the audit fee will be higher than for at company operat- ing in another sector, is rejected, because based on the significance level (Sig.), the business sector influences the audit fee insignificantly. The reason for this result is that although the different business sectors have different com- plexities and risk levels, most public compa- nies are operating in many business sectors at the same time. Therefore, this could be one of the reasons why the audit companies consider other factors to determine the audit fee instead of the business sector. Hypothesis H7, which assumes that if a company has a lower return on equity (ROE), the audit fee will be higher, and hypothesis H8, which assumes that if a company has a continu- ous loss in three recent years, the audit fee will be higher, are two hypotheses relating to the financial conditions of auditees. Based on the research result, the two hypotheses are rejected Journal of Economics and Development Vol. 19, No.2, August 201784 because two variables, which are ROE and the dummy variable, whether the auditee has had loss in three recent years, influences the audit fee insignificantly. In order to explain this re- sult, Chan, Ezzamel and Gwilliam (1993) have given two reasons. Firstly, the audit companies could not know the importance of these factors clearly in the audit process and when determin- ing the audit fee. Secondly, for the purpose of enhancing their reputation and finding more customers, audit companies might reduce the audit fee for the auditee having bad financial conditions, and this leads the influence level of financial conditions of the auditee on the audit fee to decrease. Lastly, there are some proba- bilities that the managers of the auditee com- pany could manipulate these financial ratios and profits to boost their bonuses or impress outside investors by earnings management, so these ratios become more unreliable and that could be one of the reasons why the auditors still consider these factors but not take these as an important factors to decide the audit fee. Moreover, hypothesis H9, which assumes that if a company has been audited by a Big 4 auditing company, the audit fee would be higher than for a company audited by another audit company, is accepted because based on the significance level (Sig.), the reputation of audit companies influences the audit fee sig- nificantly. The first reason for this result given by Chan, Ezzamel and Gwilliam (1993) is that thanks to experienced and professional audi- tors, the audit quality of Big 4 companies might be high and this leads to the audit fee increase. The second reason given by Yidi Xu (2011) is that the larger the public companies, the high- er the demand for quality financial statements, and this leads to the demand for signing with large audit companies to increase. And the last reason is that in accordance with Yidi Xu (2011), it is not sure to conclude that the audit fee of Big 4 companies is high because the au- dit quality of Big 4 companies is higher than the other audit companies, but maybe because of the influence of the reputation of audit com- panies in the competitive market of audit fees. Lastly, hypothesis H10, which assumes that if the audit report lag of the company is longer, the audit fee will be higher, is rejected, because the audit report lag influences the audit fee in- significantly based on the research result. The reason for this result is that the audit fee is de- termined by the audit company when signing the audit contract with the auditee and this has happened before the auditors issue the audit re- port. Therefore, this may be one of the reasons why the audit report lag influences the audit fee insignificantly. 6. Conclusions and recommendations 6.1. Conclusions For the purpose of researching the deter- minants of audit fees for public companies in Vietnam, some important previous content will be summarized as follows: Firstly, two theoretical frameworks for the existence of auditors are introduced. These are agency theory and information asymmetry theory. The agency theory indicates the bene- fit conflict between the agent and the principal, particularly the shareholders and the managers. In order to prevent abnormal behaviors of man- agers which can harm the benefit and wealth of shareholders, the shareholders have built some monitoring procedures and one of these procedures is the audit. However, to build these Journal of Economics and Development Vol. 19, No.2, August 201785 procedures, the shareholders have to pay costs, which are called the agency costs, and the au- dit fee is one of the components of the agency costs. Whereas the information asymmetry in- dicates that although the shareholders are the actual owners of the company, they do not have access to all internal information about the fi- nancial and business condition of company, but only know through the financial statements created by the managers. Therefore, in order to guarantee the quality of financial statements, the shareholders need the auditors to confirm whether there are any material misstatements in the financial statements. And the sharehold- ers have to pay the audit fee for the auditors. Secondly, according to the previous re- searches, the opinions about audit fees are sum- marized in many aspects. Besides, this study introduces some different measurements of the determinants of audit fees in previous research- es, and analyzes them to find the best measure- ment for the research model. Moreover, the dif- ferent opinions about the relationship between the determinants and audit fees are the basics to build the research hypotheses. Then, the research methodology is given in this study. Moreover, the research model is pro- posed with the measurements of the dependent variable and independent variables, and the re- search hypotheses are built based on the previ- ous researches. After that, the research model is analyzed based on the research methodology as pre- sented. After analyzing the correlation among variables through the correlation coefficient, the research model is completely relevant to the overall data, and the regression relation- ship between the independent variables and the dependent variable is analyzed by the OLS method. The result shows that only three of ten variables influence the audit fee significantly. To explain this result, this study compares the result with the other researches and discusses some reasons based on the previous researches. Finally, some recommendations are pro- posed to improve the effectiveness of audit fee determination and some limitations and re- search directions in the future are recommend- ed. 6.2. Recommendations Based on the research result, two recommen- dations are proposed for the state institutions and audit companies to improve the effective- ness of audit fee determination as follows: Firstly, the state institutions need to pro- pose some specific regulations about the basis for determining audit fees. At the moment, the regulations about audit fees are only proposed in Article 41 of the Independence audit Law (2011), which has generally explained that the audit fee has to depend on the audit tasks or the audit time. However, the audit fee does not depend only on the characteristics of the audit tasks, but also depends on the characteristics of the auditee as to the business and financial con- ditions. Particularly, the research result of this study has proved that besides the characteris- tics of audit companies, the audit fee for public companies in Vietnam also depends on the au- ditee size and auditee complexity. But because the state institutions have not already proposed a basis for determining audit fees, including the characteristics of the auditee, some audit com- panies would not be concerned about the risk characteristics when determining the audit fee. Therefore, in order to minimize unfair com- Journal of Economics and Development Vol. 19, No.2, August 201786 petition in the audit market when some audit companies reduce their audit fee lower than the minimum fee for one audit process, the state institutions have to propose a more specific ba- sis to determine the audit fee, not only the basis relating to the audit tasks or the experience of auditors, but also the basis relating to the char- acteristics of the auditees. Secondly, besides the audit fee, the audit companies have to inform the auditees about the basis for calculating the audit fee. Because no one knows the auditee more clearly than the auditees, this would help the audit companies get much relevant information to determine the audit fee and build the audit process. Therefore, informing the auditees about the basis used for calculating the audit fee would be similar to taking the opinions of the auditees about their own business conditions and inherent risks. 7. Limitations and research directions in the future Firstly, one limitation of this study is the sampling size, because in reality there are not many public companies in Vietnam announc- ing their audit fees like other countries in the world, this is why it is difficult to collect data and the sampling size is not large. Therefore, future research on the determinants of audit fees may overcome the difficulty about collect- ing the data and the sampling size will increase. 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