THE RELATION BETWEEN EXTERNAL AUDIT FEES, INTERNAL AUDIT AND THE AUDIT COMMITTEE

This study examines the association between audit fees, an effective audit committee and the use of internal audit. The study is undertaken in Australia, where the use of audit committees and internal audit are voluntary. We use a unique dataset comprising both publicly available data together with information obtained from a survey of listed companies. Using traditional audit fee models, we find a significant positive association between the level of audit fees and both the existence of an audit committee and certain features of the audit committee. While the number of audit committee meetings is positively associated with the level of audit fees, there is also a significant interaction effect between the frequency of meetings, and the independence and expertise of the committee members. We also find a significant positive association between the use of internal audit and audit fees. This suggests that firms committed to a greater level of external auditing also have an increased demand for strong internal monitoring.