Talk to Your Auditor Now or Pay Later

Mergers and acquisitions, growing documentation requests from external auditors and new accounting standards are among the factors contributing to higher fees during the 2016 audit season.


As businesses grow, shrink or change, finance leaders need to stay in constant communication with their auditors or end up paying for additional hours playing catch-up at close, according senior-level executives interviewed as part of 2017 Audit Fee Survey Report, published today by Financial Executives Research Foundation.

One of the strategies companies are adopting to help mitigate audit fees revealed in the FERF report released today is working collaboratively with their auditors, such as communicating more frequently throughout the year so the auditors understand business developments or address questions about potentially complex issues.

“We meet with the auditors over the course of regular business to keep them apprised of what is going on, particularly if there is something like an acquisition, growth in a certain area or movement into a new geography,” says Harry Soose, CFO of Civil & Environmental Consultants, Inc.

Steve Stensrud, lead partner for the manufacturing and distribution practice of Baker Tilly Virchow Krause, LLP, says auditors also hope to move work outside the crunch of their traditional busy season.

“Most firms are using the quarterly reviews as a form of interim testing, particularly if there are significant or unusual transactions to make sure that those are audited, in effect, real-time so you don’t have to go back and assess that as part of the year-end audit process,” he says.

Another practice interviewees cited is conducting a detailed review at the close of an audit to discuss how it went, including challenges and opportunities for improvement.

“We are sitting down with our auditors and looking at the fees and the hours being billed to understand what’s driving them,” says an auditing vice president at an accelerated filer manufacturer.

“If the hours are higher than we expected, we want to understand how can we work toward reducing those in the future. That cadence is going to be on a quarterly basis so we know what we’re being billed for, why we’re being billed for it and how we can assist in driving those fees down.”

Small, But Consistent Increases Revealed

Public company respondents reported a median increase of 1.3 percent, compared with 1.6 percent in the 2016 edition of the report.

Private companies reported a median increase of 3.7 percent, compared with 2.9 percent, and non-profit respondents said their organizations’ median increase was 1.6 percent, compared with 2.3 percent.

Taking a broader look at public companies, an analysis of 2016 SEC filing data by data analysis provider MyLogIQ reveals a median audit fee increase of 2.6 percent among 6,394 registrants. This compares favorably with the 3.5 percent median increase reported for the 2015 audit season.

Overall, 2,296 registrants (36 percent) reported an audit fee decrease, while 2,120 registrants (33 percent) reported an increase in their audit fees.

Factors Behind Increases

Mergers and acquisitions, growing documentation requests from external auditors and new accounting standards were among the factors contributing to higher fees.

M&A contributed to higher audit fees for nearly three-fourths of the 80 public companies that reported fee increases for their 2016 audits. For instance, one chief accounting officer at a healthcare provider cited acquisition-related valuation services and purchase accounting reviews as major factors for higher audit fees.

As in recent surveys, the Public Company Accounting Oversight Board (PCAOB) was cited by numerous respondents as a factor in increased audit fees, particularly for more comprehensive documentation requests.

The new revenue standard has had a limited effect on audit fees so far, but 68 percent of respondents expect fees to increase for audits of their 2017 results and in upcoming PCAOB inspections.

FERF’s 2017 Audit Fee Survey Report, sponsored by Workiva, is available here.