Audit fees: What is the influence of shareholders?

Cédric Lesage, Professor of Accounting and Management Control - September 15th, 2013
Audit fees: What is the influence of shareholders?

The impact of potential conflicts between shareholders and managers on audit fees has been the topic of numerous studies in Anglo-Saxon countries. But there is no evidence that these findings apply to civil law countries such as France, where the main source of conflict concerns the relationship between majority and minority shareholders. And yet, it seems as if these conflicts have a real impact on the cost of audits.

Cédric Lesage ©Cédric Lesage

Cédric Lesage is a professor at HEC, where he teaches accounting, ethics, and audit research. He holds a PhD degree in Management from the University of Rennes. A former auditor, (...)

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Statutory auditing involves verifying accounts to ensure shareholders and third parties that the financial statements presented to them are honest, consistent, and reflect the actual financial situation of the company. The appointment of a statutory auditor is required in a number of jurisdictions (SA, SAS, as well as some SARL and associations that meet criteria related to revenue, number of employees, total assets, and/or subsidies). The company being audited pays the statutory auditor, who is appointed at the shareholders’ meeting. A scale established by decree determines the amount of the fee, depending on the volume of work to be done and taking into account the size of the company and the complexity of the audit to be performed. Auditing standards also require consideration of the capital structure, but what is the importance of this particular criterion for audit fees? In addition, auditors aim to protect shareholders, and their findings may lead to legal action if the latter feel aggrieved. Do fees take into account this legal risk? Are they the result of a negotiation or a calculation of the cost of work added to a risk premium?


Auditors can find themselves at the center of conflicts between managers and shareholders as well as between different types of shareholders. Shareholders want to maximize the value of their shares, and managers their salaries and personal benefits, and these differences of interest can be sources of conflict. Even between shareholders, divergences are possible. Majority shareholders can have access to information about the company that can enable them to benefit at the expense of minority shareholders. In Anglo-Saxon countries, regulated by case law, investors do not hesitate to prosecute majority shareholders and managers who try to wrong them. This is more rare in civil law countries such as France. Where the risk of prosecution is low, audit fees seemingly could not apply a risk premium. But is this really the case in France?


Contrary to the results highlighted in Anglo-Saxon literature, the risk of conflict between shareholders and managers has little influence on audit fees, reveal Cédric Lesage and Chiraz Ben Ali. And when leaders are shareholders, fees do not decrease, although there is no longer a divergence of interest and the audit is facilitated. This result, due to the weakness of executive share ownership (excluding family structures) in France, leads the authors to focus on the potential conflict between minority and majority shareholders.

In France, leads the authors to focus on the potential conflict between minority and majority shareholders.


With French legislation being less favorable to shareholders than Anglo-Saxon law, shareholders often seek to protect themselves by increasing their clout in companies to reduce the asymmetry of information with management. The researchers find that there is a concave relationship between audit fees and the concentration of ownership. When no shareholder has more than a 20% stake in the company, fees increase with the concentration of ownership. But this phenomenon is reversed when at least one shareholder holds more than 20% of the capital. So, the higher the capital concentration, the lower the audit fees. In this case, the shareholders’ interests converge, and there is less information asymmetry between them. In that case, the risk of conflict between shareholders is thus well integrated into the audit fees – to some extent!


In the case of family business, the greater the family’s ownership, the lower the fees – and this applies regardless of the concentration of capital. Why does the model highlighted by the researchers, which applies well to other companies, not work for family companies? The leaders-shareholders of these companies, who have more information than their counterparts, have less need of auditor services. It is also possible that they have bargaining power that exerts a downward pressure on fees. The structure of their capital should be studied further to better respond to this question.

Based on an interview with Cédric Lesage and his article “Les auditeurs financiers face aux conflits d’agence : une étude des déterminants des honoraires d’audit en France” co-written with Chiraz Ben Ali (Comptabilité – Contrôle – Audit / Tome 19 – Volume 1, April 2013).


The study by Cédric Lesage and Chiraz Ben Ali enables audit firms and shareholders to better understand how audit fees are established. It can also help regulators in their work on audit rules, increasing the consideration by the auditor of the potential conflict between majority and minority shareholders, predominant in civil law countries such as France.


Cédric Lesage and Chiraz Ben Ali studied research on the influence of the shareholding structure on audit fees. They derived hypotheses, which they subjected to a statistical study of a sample of 415 French companies with different capital structures, representative of the French market, using data obtained from Worldscope and ThomsonOneBanker databases, as well as financial reports from audit firms. France is chosen here as a typical civil law country, compared to common law in Anglo- Saxon countries.