Studies of audit costs have focused on the audit market and on the organisational costs related to the production of audit. Audit is, however, an activity that is oriented towards the principal of the organisation, and could therefore be expected to vary according to the relationship between the agent and the principal, and vary according to the organisation of the principal. This is the governance issue of auditing. We hypothesize that audit costs are used mainly as a signalling device by agents and as a means of reducing conflict among agents when communicating to principals, be they citizen, the state, the mass media or interest group. Our model of determinants of audit costs is tested on data from Swedish municipalities, thus extending the study of audit costs to political organisations in a Scandinavian institutional set-up. The test supported the ordinary propositions of organisational and market determinants, as well as the proposition of the principal, thereby suggesting that audit could constitute a signal that can me managed.