Abstract:

The volatile nature of Nigeria’s business environment, marked by high regulatory intensity and inherent risks, poses challenges for financial service firms, particularly in meeting mandatory audit obligations. This study examined the effect of risk factors (liquidity risk and operational risk) on audit fees purposively selected among 26 listed financial service firms in Nigeria. Using an ex-post facto research design and panel Least regression model, secondary data from 286 observations (2013–2023) were analyzed. Findings revealed that liquidity risk significantly and negatively affects audit fees (Coefficient = -0.110635, p = 0.0288), indicating firms with better liquidity management incur lower audit costs. Operational risk (Coefficient = 0.025628, p = 0.2899) showed no significant effect. With an R-squared value of 0.472829, the model explained 47.3% of audit fee variations. These findings conclude that liquidity risk is a determinant of audit fees, while operational risk exerts an indirect influence moderated by regulatory frameworks and internal controls mechanisms. The study recommended managers adopt effective liquidity and operational management practices to mitigate perceived risks and negotiate lower audit fees, urging policymakers to emphasize liquidity-focused frameworks. This study contributes to the limited empirical literature on audit fee determinants in Nigeria, offering practical implications for managers, auditors, and regulators.