Audit fees keep rising, thanks to new accounting standards
Average audit fees increased 4.25 percent from 2017 to 2018, going from an average of $2,220,251 in 2017 to $2,314,703 in 2018, mainly driven by new standards from the Financial Accounting Standards Board, according to a new report.
The report, from the Financial Education & Research Foundation, an affiliate of Financial Executives International, found that more public companies are seeing an increase in the volume of work needed to get an audit report from their outside auditors (73 percent) than private companies (27 percent) and nonprofit organizations (22 percent).
Some of the reasons cited for the audit fee increases in the public sector match up with FERF’s earlier annual reports, starting with the impact of new FASB standards at 66 percent, especially those related to revenue recognition and leases. Other contributing factors include high levels of mergers and acquisitions (36 percent) and a focus on revenue recognition (34 percent).
Private companies and nonprofits cited inflation and negotiation with their primary auditor as the main reasons for audit fee increases. On an industry basis, the biggest changes in average audit fees were seen by depository institutions, which experienced a 22.94 percent increase, thanks to preparation for the credit losses standard, also known as CECL.
Over the past 10 years, the study has found in general that smaller companies have reported decreases in audit fees while larger companies have seen increases. Companies are paying more per hour for audits now. Average hourly audit fees have increased from $216 per hour in 2009 to more than $283 per hour in 2019.
“FEI members have experienced significant change in the audit process over the past decade, and this study reflects the challenges they have faced in containing the cost of the audit,” said Andrej Suskavcevic, president and CEO of FEI and the FERF, in a statement. “The 2019 audit season shows that as accounting change continues, that trend is uninterrupted.”
Mark Winiarski, a shareholder at Top 100 Firm Mayer Hoffman McCann PC, told Accounting Today about how his firm is helping its audit clients deal with some of the new accounting standards like the revenue recognition standard.
“It’s been an ongoing challenge,” he said. “Most of our business is private company-oriented. Encouraging our clients to pick up the banner and put effort into the adoption process has been a real challenge. Depending on how different offices have approached it, it’s been a mixed bag in getting people to pick up that effort. Feewise it’s always a challenge — particularly for private companies who aren’t as regulatory-focused and compliance-focused — to go to them and say they have to go through this process in order for us to give an opinion. It becomes a compliance exercise that we’re forcing upon them in some cases.”
His role often entails auditing or reviewing how a client is adopting an accounting standard like revenue recognition. “We also do a fair bit of implementation assistance projects, helping private companies implement the standard or with the audits,” he added. “It depends on what the relationship with the client is or what their needs are.”
Private companies that have been dragging their heels on implementing the rev rec standard are racing to catch up now, since it’s now required for their year-end statements. “The clients that didn’t heed the warnings are now at the point where they need to scramble and get it done in order for us to do the audit now that the year is done,” said Winiarski.