Annual audit fees rose at a median rate of 3.2 percent in 2015 for all companies filing with the US Securities and Exchange Commission (SEC), according to the latest Annual Audit Fee Survey by the Financial Executives Research Foundation (FERF).
Reviews of internal controls, inflation, and acquisitions were among the top factors driving the fee increases. Almost one-fifth of SEC filers reported ineffective internal controls over financial reporting, the survey report states. For those companies, the median fee increase was 5.1 percent.
However, FERF indicates that accelerated filers are able to mitigate the size of the increases.
Public company respondents reported a median increase of 1.6 percent, while private companies reported a median increase of 2.9 percent.
Audit fee increases varied by company size. Nonaccelerated filers reported higher increases than all accelerated filers and smaller companies in 2015. In 2012, for example, nonaccelerated filers reported an audit fee increase of 1.8 percent, while large accelerated filers reported a 5.5 percent increase. That reversed last year, as nonaccelerated filers reported a 4.8 percent increase and large accelerated filers reported an increase of 3.8 percent. Small companies in 2015 reported a 2.3 percent fee increase.
“We know increasing the efficiency and decreasing the cost of audit fees is integral to controlling overall administrative costs,” said Andrej Suskavcevic, CAE, president and CEO of Financial Executives International and FERF. “We remain committed to studying audit fee data and trends, and coupling this research with opportunities for education and networking to promote best practices in all aspects of the financial audit among financial executives.”
Here’s six other takeaways from the survey:
1. Audit fees paid by the 6,490 unique filers for their 2015 audits averaged $1.8 million, with a median of $522,205.
2. The average increase in audit fees was 32.5 percent.
3. More than 1,100 filers saw a decrease in audit fees. But more than 300 filers had fees increase by more than 100 percent.
“These ‘outliers’ tend to explain the significant difference between the average increase of 32.5 percent and the median increase of 3.2 percent,” the survey report states.
4. Audit fees paid by the 89 public companies that responded to the survey averaged $6.5 million, with a median of $2.4 million. The average percentage increase in audit fees reported by public companies was 4.5 percent, and the median increase was 1.6 percent.
About one-third of respondents said acquisitions drove the fee increase, while one-fifth cited reviews of manual controls from Public Company Accounting Oversight Board inspections. One-third said Sarbanes-Oxley Section 404 compliance has resulted in better internal controls and was worth the added expense.
5. For the 126 private companies that responded, audit fees averaged $258,935, with a median of $102,059. The average fee increase was 6.1 percent, with a 2.9 percent median increase.
About one-third of respondents cited inflation as a reason for the increase, while nearly one-fifth cited acquisitions.
6. The 30 nonprofits that responded paid an average audit fee of $159,844 and a median of $84,625 – an average 6.2 percent increase and 2.3 percent median.
About one-fifth of respondents stated that acquisitions drove the increase. Slightly less than half (45 percent) indicated that inflation was the reason for a fee increase.