Compulsory Audit Tendering and Audit Fees: Evidence from Australian Local Government

Abstract

This study uses data collected from annual reports of Australian local councils in the state of New South Wales (NSW) to provide longitudinal evidence on the impact of compulsory audit tendering, as introduced by the NSW Local Government Act 1993, on audit fees over the nine-year period from 1993 to 2002, and including both the initial and second tender periods. The results show that (i) a relatively large audit fee decrease was associated with the introduction of compulsory audit tendering, and (ii) the fee decrease was non-transitory in that, following the initial decline, fees did not increase during the remainder of the six-year first tender period and did not change on the second tender. Our results are consistent with the economic literature on auctions and tenders and on compulsory competitive tendering. The results also have implications for policy-setters and regulators in both the governmental public sector and, potentially, the private sector, in that they provide a benchmark for what might be expected if compulsory audit tendering is adopted in other contexts.

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