An empirical analysis of external audit fees paid by United States federal government agencies
Tribou, Kimberly Jane
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My study examines audit fees for the executive agencies comprising the United States Federal Government. In performing the first (to the best of my knowledge) accounting exploration into U.S. government federal agency audit fees, I use financial statement variables that were hand-collected from federal agency financial statements and novel contract data gathered from the Federal Procurement Database System. This study is significant because of the scope of federal government operations that must be audited ($3.5 trillion in assets), the relevance of the United States Federal Government to Gross Domestic Product (21 percent), and the volume of audit and consulting services purchased from the private sector. I examine both client (agency) risk factors and the audit climate factors embedded in these audit fees. I find that federal agency audit fees are positively associated with systematic risk factors identified in private sector audit fee models; these include agency size, foreign operations, and the complexity of the organization. As in prior research, I find a positive association between audit fees and the debt-to-assets ratio. Federal agency audit fees are positively associated with heightened audit complexity (e.g., adverse audit opinion and reporting of a material weakness in financial reporting controls). Because federal agencies procure resources and disburse funds for public benefit, my model for federal agency audit fees incorporates risk determinants that are unique to federal government operations. I document associations between federal agency audit fees and grant management responsibilities, environmental remediation liability, and real property management, all of which are risks identified in Inspector General and Government Accountability Office high-risk reports. Given the unique setting, I find that certain relationships found in previous studies related to corporations and local governments – such as auditor change, auditor tenure, and taxpayer governance – are not relevant for governmental agencies.