Survey: Public and Private Company Audit Fees Went Up in 2013by
A new survey released on Thursday by the Financial Executives Research Foundation (FERF) found that public companies paid an average of $7.1 million in audit fees last year, an increase of 4.5 percent over audit fees paid in 2012, while private company audit fees averaged $174,858 in 2013, which is 3.7 percent higher than the previous year.
In addition, the average audit fee for US not-for-profit organizations increased 1.5 percent to $73,023 last year, according to the 2014 Audit Fee Survey.
FERF – the not-for-profit research affiliate of Financial Executives International – partnered this year with research firm Audit Analytics for the survey, which features responses from nearly 400 financial executives.
The survey, which was sponsored by Silicon Valley Accountants and Hyland Software, examined the total fees companies paid to external auditors in 2013, as well as a variety of topics related to the auditing process.
“An audit, obviously, will never be free. Even audits of the best-run companies, performed by the most efficient auditors, will have a baseline cost,” Gabriel Zubizarreta, CEO of Silicon Valley Accountants, wrote in the survey report. “However, if a company’s financial management and reporting processes are not efficient and effective, the controllable portion of audit fees will undoubtedly increase. As the survey confirms, overall audit fees continue to rise. Yet, companies demonstrating excellence throughout their organization continually experience the lowest controllable audit fees and lowest audit fee increases.”
According to the survey, public company financial executives attributed the 4.5 percent increase in audit fees to the review of manual controls resulting from Public Company Accounting Oversight Board (PCAOB) inspections, as well as other PCAOB issues. If an audit firm was subject to the PCAOB’s oversight review, nearly 63 percent of 80 respondents indicated their audit firm shared the comments they received from the PCAOB with them, while 16.3 percent noted their audit firm did not.
In addition, 60 percent of respondents were required to change their controls, and 80 percent changed their control documents as a result of the US audit watchdog’s requirements or inspection feedback.
The majority of private companies (60 percent) and not-for-profit groups (67 percent) attributed the increases in their audit fees last year to inflation, according to the report.
The number of audit hours required for a public audit in 2013 averaged 17,525, at an estimated average cost of $249 per hour. For private companies, the average audit hours required were 2,927, at an estimated average cost of $179 per hour. Not-for-profits averaged 935 audit hours, estimated at $149 per hour.
As was the case in the past, the average audit fees of companies with centralized operations – both public and private – were found to be significantly less than those with decentralized operations. On average, public companies with centralized operations paid $3.9 million for their annual financial statement audits, while those with decentralized operations paid $9 million.
Private companies with centralized operations on average paid $145,500 for their annual financial statement audits; those with decentralized options paid $474,000.
The survey also found that public companies have used their audit firm for an average of 23 years, nearly three times the average auditor relationship reported by private companies and not-for-profit organizations (eight years). Ninety-one percent of public companies use the Big Four audit firms.
According to data from Audit Analytics, EY had the highest public company audit market share at 13.8 percent, followed by PwC at 10.5 percent, KPMG at 9.8 percent, and Deloitte & Touche at 9.1 percent.
Among private companies, PwC, Deloitte, and Grant Thornton were each cited by seven respondents as their primary audit firm, followed by EY, McGladrey, Moss Adams, BDO, and BKD with six.
The following are two other key findings of the survey:
- More than half of public company respondents (57 percent) indicated an increase in internal cost of compliance with Sarbanes-Oxley Section 404 within the past three years. However, many financial executives stated they believe they now have improved internal controls, making it worth the additional overall expense.
- The large majority of public company respondents (92 percent) stated their boards annually assess their audit firm’s performance and independence qualifications. Sixty-one percent of private companies and 65 percent of not-for-profits indicated their boards annually assess their audit firm’s performance and independence qualifications.