Identifying The Determinants Of Audit Fees,In A Post J-Sox Scenario

Research on the determinants of audit fees has mostly focused on the U.S. and other countries. The Japanese Institute of Certified Public Accountants (JICPA) eliminated standard auditing fees in April 2004, leading to intense competition among audit firms. However, previous studies conducted in the U.S. and some European countries suggest that oligopolistic conditions exist. These studies also show that audit firms add additional inspection costs to the audit fees, when estimating further audit risks. This study aims to empirically confirm whether Japanese audit firm charge similar fees or if the auditors' effort is reflected in audit fees. This study focuses on audit quality because firms cannot cover the cost of conducting an audit in competitive scenario with low fees, leading to a decline in audit quality. To examine the scenario after the enactment of the Financial Instruments and Exchange Act, commonly referred as the Japanese Sarbanes-Oxley (hereafter, J-SOX), this study uses variables that estimate internal control risks and corporate governance risks. In conclusion, this study confirms that Japanese audit firms conduct risk adjustment activities.