The impact of adopting international accounting standards (IAS/IFRS) on banking audit fees

This paper studies the effect of adopting IAS/IFRS on audit fees in the banking industry. This issue has not been considered yet by previous works on audit fee determination and the findings may shed light on the costs associated with the accounting harmonisation process. We consider 150 Italian banks from 1999 to 2006 and we base our analysis on a panel model relating fees to firm-specific determinants. Consistent with the view that adopting IAS/IFRS increases auditor effort, we find that higher fees are paid after the switch to the new standards. Fees increase both in the transition year and in the following one. In the elements of banks’ accounts, financial instruments are among the most difficult assets to be evaluated at fair value. Accordingly, we find that the increase in fees observed after the introduction of IAS/IFRS is partly driven by the presence of derivatives held for hedging purposes.