Does Agency Theory Provide a General Framework for Audit Pricing?

This paper examines whether agency theory provides a general framework for audit pricing. It is hypothesized that audit fees are determined by agency theory and a set of other factors identified in the previous literature. To empirically test the hypothesis, audit pricing is analyzed in seven countries representing different kinds of accounting and economic environments. The results of the study confirm that a negative relationship exists between audit fees and manager ownership and that a positive relationship exists between audit fees and free cash flow in several countries. This implies that agency theory can be used, at least to some extent, to explain audit fees internationally. Moreover, agency theory explains audit fees similarly across countries while the control variables have different impact on audit fees.