Managing audit fee pressure during COVID-19

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Fall can be a busy time of year for a public accounting firm. It’s generally a time for firms to reconnect with clients to prepare for the end of the fiscal year. However, this fall is anything but typical.

Some companies have completely changed their workspace in order to keep employees and customers safe, while others are fully remote to do the same. Additionally, financial results may look different this year — hopefully for the better, but possibly for the worse.

Below are two key areas that CPA firms should closely watch to manage audit fees in 2020:

1. Time spent reviewing lease concessions

With so much economic uncertainty, many clients either benefited from relief programs or utilized contract terms to relieve the pressure of rent payments.

While this helps preserve cash flow, lease concessions and other COVID-related changes require extra work, especially under the new lease standard. It takes time to not only determine whether a lease concession occurred (versus a lease modification), but it also takes time to account for it.

That extra work means spending more hours on an audit, and it may be challenging to bill all of these hours to the client. For example:

  • Are lease concessions part of your scope of work?
  • How is your contract structured? Do you charge by the hour or offer a flat rate?

These factors will affect whether audit fees climb while examining lease concessions.

2. Conducting an audit remotely versus on-site

While many people have transitioned to remote work, some of your clients may have started reopening or were never able to go fully remote. When it comes time to conduct your audit, will it be on-site or remote?

If you’ll conduct an audit remotely, consider the following factors that may introduce audit inefficiencies:

  • Watch for the risk of communication breakdown performing tasks via email, which can result in lost time. Normally you might stop by someone’s office for a quick answer to a question. If you wait all day for an email response, not only does it take longer to resolve issues, you can spend even more time on follow-up requests. Additionally, it’s difficult to stress the urgency to a client when they don’t see you in the office all day.
  • Put in the extra effort to create personal interactions. When on-site, it’s easier to differentiate yourself as a trusted partner and to continue building relationships. No business owner has ever said, “Hooray, the auditor is here!” so it’s crucial you make a positive impression, even when working online.

If the audit will be conducted on-site, you’ll need to take the client’s pandemic safety policies and procedures into consideration. Hopefully, every client is operating in a way that keeps employees, customers and auditors safe.

Your firm also must decide how it approaches team safety on-site and set those expectations with the client. What are the clients’ health and safety policies as they apply to your onsite audit? What are your firm’s policies? Additional considerations include:

  • Will there be COVID charges in a bill? For example, if you and your colleagues will need to be in the office, who will take care of things like masks and cleaning supplies? Will your firm bill the client for added safety expenses?
  • Will time spent on extra safety precautions be factored into the contract? For example, if auditors need to wait in line with employees for temperature checks, how is that time billed?
  • If a key team member exhibits symptoms or contracts COVID-19, what is the contingency plan to ensure continued work?

No one knows what the next normal is for client audits, but efficiency is important now more than ever. While many clients may struggle financially due to recent economic hardships, charging for additional pandemic-related costs brings extra difficulties.

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Audits Coronavirus Practice management Client relations Work from home