According to the annual Audit Fee Survey released by the Financial Executives Research Foundation (FERF), the non-profit research affiliate of Financial Executives International (FEI), public companies paid on average $7.1 million in audit fees, representing an increase of 4.5 percent over last year’s audit fees paid.
The survey examined the total fees companies paid to external auditors in 2013, and a number of topics related to the auditing process.
Sponsored by Silicon Valley Accountants and Hyland, FERF partnered this year with Audit Analytics for the 2014 Audit Fee Survey and received responses from nearly 400 financial executives. The survey indicated public and private companies, as well as non-profits, saw an overall increase in their audit fees in 2013 over the previous year, and examined factors influencing audit fees and related expenses.
"Even audits of the best-run companies, performed by the most efficient auditors, will have baseline costs," wrote Gabriel Zubizarreta, CEO of survey sponsor Silicon Valley Accountants.
"However, if a company’s financial management and reporting processes are not efficient and effective, audit fees will undoubtedly increase. As the survey confirms, overall audit fees continue to rise; interestingly, we contend that companies demonstrating excellence throughout their organization continually experience the lowest audit fees and audit fee increases."
According to survey findings, 87 responding public companies paid an average audit fee of $7.1 million for their audits, an increase of 4.5 percent over their prior year’s audit fees. The number of audit hours required for a public audit averaged 17,525, estimated to be $249 per hour.
Among private companies, 104 respondents paid an average annual audit fee of $174,000, which was 3.7 percent higher than in 2012.Respondents attributed the increase primarily to inflation. The number of audit hours required for a private company averaged 2,927, estimated to be $179 per hour.
For nonprofit organizations, audit fees averaged $73,000, a 1.5 percent year-over-year increase (primarily from inflation). The number of audit hours required for a nonprofit organization averaged 935, estimated to be $149 per hour.
Does Centralization Cut Costs?
As in previous years, the survey examined whether centralization of operations influences the costs of audits and related fees.
Among 65 public companies responding to this question, 41 companies (63 percent) reported having centralized operations, and an average cost of $3.9 million for annual financial statement audit. In contrast, the 24 companies (37 percent) with decentralized operations paid an average of $9 million.
Among private companies, the results were similar, with 88 companies with centralized operations reporting an average audit fee of $145,000, and the eight companies with decentralized operations reporting an average expense of $474,000.
Big 4 Dominant
Most of the public company respondents (79, or nearly 91 percent) reported using one of the Big 4 firms as their primary auditor. EY was mentioned most often (by 27 respondents), followed by PwC (25).
Among private companies, PwC, Deloitte and Grant Thorton were each identified by seven respondents as their primary audit firm, followed closely by EY, McGladrey, Moss Adams, BDO and BKD (each with six citations as their primary audit firm).
More information about the Audit Fee Survey, which is available free to FEI members, is available from FERF.