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Audit Costs Continued Steady Climb in 2015

Dec 5th 2016
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A new report by Audit Analytics indicates that audit costs continue to rise, as accelerated filers paid 14.25 percent more per million of revenue in 2015 compared to 2012.

Specifically, audit fees expressed as a revenue factor were $529 per million of revenue in 2015 compared to $486 per million in 2014, $475 per million in 2013, and $463 per million in 2012.

Companies also paid more for audit work not specifically related to audits of financial statements or internal control over financial reporting, according to the report. In 2015, companies paid $599 per million in audit and audit-related costs, up from $549 per million in 2014 and $537 per million in 2013.

“We’re seeing a steady, but not steep, increase in audit fees,” Don Whalen, research director at Audit Analytics, said in a prepared statement.

Accelerated filers also paid higher nonaudit fees to their external audit firms in 2015 – $149 per million compared to $129 per million in 2013.

A review of nonaudit fees as compared to audit fees is of interest because the US Securities and Exchange Commission (SEC) considers high nonaudit fees to be an auditor independence concern, Audit Analytics noted.

“If an auditor earns a large amount of fees performing nonaudit fee assignments, this dynamic may, over time, subconsciously undermine an auditor’s professional skepticism while performing the independent audit,” the report states.

Thus, the SEC has primarily four categories of audit fees that registrants must disclose:

  • Audit fees
  • Audit-related fees
  • Tax fees
  • All other fees

The report also includes findings related to audit-cost increases for companies that received adverse opinions in the prior year. Those findings indicate that companies pay a good bit more to external auditors in the year after an adverse opinion.

In 2013, for example, companies that received adverse internal control opinions paid $733 per million in revenue for the external audit, but that rose to $1,013 per million the following year.

Whalen noted that the findings indicate companies with adverse opinions paid less in external audit and nonaudit fees in the years before the adverse opinion.

“It makes me wonder if that was a situation where it came back to bite them later on,” he stated.

The report also includes these four takeaways.

  • In 2002, nonaudit and audit-related fees were 51 percent of total fees paid by accelerated filers. But after three years of strong and steady decline, nonaudit fees have leveled off at about 22 percent for the past six years.
  • In 2015, nonaudit fees (without audit-related fees) comprised about 11.6 percent of total fees paid by accelerated filers, which was less than one-third of the percentage value of 2002.
  • Nonaudit fees (without audit-related fees) paid by accelerated filers during the past 10 years stayed between $68 to $79 per million in revenue.
  • After three years of decreasing costs, audit fees paid per million of revenue saw three years of rising costs.

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