Reducing audit fees and increasing the quality of financial reporting.
FERF has launched the 2016 Audit Fee Survey, which asks respondents for audit fee information about the audit of their fiscal 2015 financials, and reasons for increases or decreases in fees.
Respondents from publicly held companies do not need to provide audit fee information, because that information will be taken from SEC filings.
Looking at key findings from the 2015 Audit Fee Report, which supplemented survey responses from senior-level financial executives with audit fee information from over 7,000 SEC Filers, audit fees increased in 2014, primarily because of acquisitions and, for the second year in a row, review of manual controls resulting from PCAOB inspections.
Other reasons for increased audit fees included inflation, implementation of the new COSO framework, and changes in organizational structure.
Based on SEC filings (provided by MyLogIQ), the median increase in audit fees from 2013 to 2014 was 3.4 percent. But for the 20 percent of filers (1,460) who reported ineffective internal controls over financial reporting (ICFR), the median increase in audit fees was 6.4 percent. This was three percentage points greater than the overall median change in audit fees of 3.4 percent, and 4.6 percentage points more than the U.S. Average Producer Price Index for Services of 1.8 percent.
Although the median change in SEC filers’ audit fees from 2013 to 2014 was a 3.4 percent increase, over 45 percent of public companies reported lower audit fees from the prior year. What were the factors that contributed to this decrease? Are such practices sustainable?
In the follow-up research report, Mitigating Increases in Audit Fees, FERF staff conducted in-depth interviews with company executives who were able to reduce audit fees for two or three consecutive years. Advice mentioned in these interviews included:
- Review current processes to identify areas for improvement;
- Improve internal controls;
- Communicate and collaborate with the external auditors;
- Centralize the audit footprint;
- Centralize ERP systems;
- Use a Cloud-based solution to automate internal controls documentation;
- Review audit hours and fees; and above all
- Skilled staff is critical!
We welcome your participation. For more information on getting control of audit fees, listen to the FEI Daily podcast interview of Joseph Howell, Executive Vice President of Strategic Initiatives at Workiva.•