Systematic Risks, Unsystematic Risks and Audit Pricing : An Analysis in the Malaysian Financial Institutions

Several empirical evidences on audit pricing across countries have been addressed and published. Most of these studies focused on the factors that have impact on the
audit fees. However, these studies have not included financial institutions in their analyses. The financial institutions are unique compared to other types of companies because they are deposit-taking institutions whilst others are not. Because of this uniqueness of their nature activities, a study that investigates the variables that affecting audit pricing of the financial institutions is deemed very necessary, especially when it is not emphasised by researchers in the past. Furthermore risk
management is increasingly important in financial institutions operations today in light of dynamic changes in the financial markets.
This study utilises panel data analysis. Also, sensitivity analyses are done to provide further clarifications and explanations of the results. The results reveal that risk
factors are important in determining financial institutions audit pricing. These show that since audit pricing, to a certain extent, depends on business and financial institutions’ financial conditions, it becomes important for financial institutions to enhance their risk management practices by taking seriously the areas and opinions highlighted by the auditors in their audit reports.