The Effect of Governmental Accounting Standards Board Statement 34 on Municipal Audit Fees

We examined the change in audit fees after adoption of GASB 34 for a sample of 350 cities, correcting for audit fee inflation unrelated to GASB 34. We found that the mean (median) fee change for 2002 adopters was 4.9 (2.9) percentage points higher than for non-adopters. The mean (median) fee increase for 2003 adopters, smaller cities, was 11.6% (8.6%) over the non-adoption year fee increase. Overall, we found that the adoption of Statement 34 increased mean (median) fees approximately 9% (5%) for all cities, but that the effect was significantly larger for small cities. Overall, we documented an increase in fees associated with adoption that is both statistically and practically significant