How Does the Average Salary of Non-managerial Employees Affect Company Audit Fees?

Abstract: This study examines the relationship between the average salary of non-managerial employees and audit fees for Taiwan publicly listed companies in 2019-2022. This period is significant due to the introduction of a new regulation mandating the disclosure of average salary of non-managerial employees’ information, a move by the Financial Supervisory Commission designed to enhance corporate transparency. Prior research, predominantly focusing on executive compensation, has overlooked this potentially important factor affecting audit pricing. The research uses data from Taiwan listed companies in 2019-2022, excluding financial and insurance firms. Empirical results indicate a significant positive correlation between the average salary of non-managerial employees and audit fees, suggesting that higher salaries are associated with higher audit fees. This effect is more pronounced for companies audited by Big Four firms, where the positive relationship is statistically significant. This finding supports that higher the average salary of non-managerial employees might reflect greater operational complexity, higher risk profiles, and thus, a greater need for more extensive and costly audit procedures. The higher fees charged by Big Four firms might also be attributed to their superior reputation and brand strength, leading to a perceived premium for their audit services. Conversely, the relationship is less evident for companies audited by non-Big Four firms, implying a possible differential effect based on the auditor’s reputation and market position.

Key words: audit fees, the average salary of non-managerial employees, big four firms

JEL codes: M, М4