New York (April 1, 2004) -- Predictions that audit fees would climb with the implementation of rules that limit the non-audit services that accounting firms can perform for audit clients and require audit committees to approve many non-audit services appear to be correct.
An analysis of proxy disclosures of most of the 30 companies in the Dow Jones Industrial Average showed that audit fees are up, while the fees that firms are collecting from audit clients for consulting and tax services have fallen sharply, according to a report by The Wall Street Journal.
A look at how the 21 DJIA component companies that have filed proxy statements for their most recently ended fiscal years spent their audit fees showed that, combined, 2003 audit fees totaled $365.3 million, up 18 percent from a year earlier, the WSJ reported. Total fees paid to auditors fell 11 percent, driven by sharp declines in the amounts billed for tax and consulting work. The drop in total fees came despite a 17 percent rise in fees for "audit-related services," such as evaluations of clients' internal controls, which are classified separately from audit fees, according to the report.
Fees for other work last year totaled $343.4 million, including $131.5 million in audit-related services. For 2002, the same companies reported $310.5 million in audit fees, compared with $488 million for other work, the WSJ said. The tax fees that the companies paid their auditors fell 7 percent to $185.2 million in 2003, while fees for work unrelated to tax or audit services plummeted 85 percent to $26.6 million.
According to the report, General Electric Co. paid its independent accountant, KPMG, $55.3 million in audit fees last year -- an increase of 43 percent from a year earlier -- while GE's fees for other KPMG services dropped 28 percent to $36.3 million, including a 39 percent decline in tax fees to $12.9 million.
The article noted that the drop in consulting activity also reflects the 2002 sale of PricewaterhouseCoopers's consulting unit to IBM. Walt Disney Co., which paid its auditor, PwC, $40.8 million in fiscal 2002 for consulting services, paid it nothing for consulting last year. Johnson & Johnson, which paid PwC $65.8 million for work unrelated to tax or audit services in 2002, spent just $5.1 million for such services last year. According to the Journal, both companies' audit fees went up.
-- WebCPA staff
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