IFRS adoption and audit and non-audit fees: empirical evidence from Spanish listed companies

Abstract

We analyse trends in inflation-adjusted audit and non-audit fees from 2003 to 2009 with the aim of identifying the impact of International Financial Reporting Standards (IFRS) in Spain, where (a) the shift from national to international accounting standards represented major changes and (b) the implementation process was conducted in 2005 for group accounts of listed companies and 2008 for the individual accounts. To that end, we build a well-tested audit and non-audit fee model based on 2003 and compare the actual with the predicted values had the accounting reforms not taken place. We report unexpected higher audit fees for the group accounts model in the years 2004, 2005 and 2006. A plausible explanation for these results is the incremental audit costs associated with the mandatory IFRS adoption. Similarly, the unexpected increment in 2008 for parent company audit fees is feasibly associated with the new domestic accounting rules. The behaviour of non-audit fees is more erratic and likely influenced by the auditors’ independence regulation enacted in 2002. We only identify significant prediction errors in 2008 for group accounts. Total fees exhibit significant increases in 2005 and 2008 for group accounts and 2008 for parent company accounts. Our results are robust to different additional tests.

Keywords:

• audit fees
• non-audit fees
• accounting regulation
• international financial reporting standards

Acknowledgements

We thank the participants at the EIASM’s Workshop on Accounting Regulation in Sienna and the European Financial Reporting Conference held in Valencia for their helpful suggestions.

Notes

1. In English, General Accounting Plan.

2. From April 2014 the Competition and Markets Authority.

3. See in: http://ec.europa.eu/internal_market/consultations/2014/ifrs/docs/consultation-document_en.pdf

4. Regulation (EC) 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards.

5. Ley de Medidas de Reforma del Sistema Financiero 44/2002, de 22 de noviembre. BOE 281 de 23 de noviembre del 2011.

6. Ley 12/2010, de 30 de junio, por la que se modifica la Ley 19/1988, de 12 de julio, de Auditoría de Cuentas, la Ley 24/1988, de 28 de julio, del Mercado de Valores y el texto refundido de la Ley de Sociedades Anónimas aprobado por el Real Decreto Legislativo 1564/1989, de 22 de diciembre, para su adaptación a la normativa comunitaria.

7. Communication of the European Commission entitled “EU Financial Reporting Strategy: The way forward”, Brussels 13.10.2000.

8. Ley 62/2003 de 30 de diciembre de medidas fiscales, administrativas y del orden social.

9. Approved through RD 1514/2007 de 16 de Noviembre.

10. Approved through RD 1515/2007 de 16 de Noviembre.

11. In 2011, 70% of the total audit turnover was supervised by the seven largest audit firms (BOICAC, 90, June 2012, p. 85).

12. SABI: Sistema de Análisis de Balances Ibéricos. In English, Balance Sheet Analysis System for Iberian Companies.

13. CNMV: Comisión Nacional del Mercado de Valores, in English, National Securities Exchange Commission.

14. The first year of the application of IFRS for the consolidated statements of five groups (two parent companies) was 2006 or 2007 (2009).

15. http://www.ine.es

16. To calculate the IFRS/NPGC premium, we winsorise all continuous variables at the top and bottom 1%.

Additional information

Funding

This paper has received financial support from the Spanish Ministry of Science and Innovation under project [ECO2011-29144-C03-02] and Junta de Andalucía under project [SEJ-8236].