FEI Survey: Companies See Only Slight Increase in 2008 Audit Fees

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FEI Survey: Companies See Only Slight Increase in 2008 Audit Fees

6/3/2009
FEI Survey: Companies See Only Slight Increase in 2008 Audit Fees

PRNewswire
FLORHAM PARK, N.J.

-Majority of Companies Taking on More Work Internally -

- More Private Companies Seeking Auditor Change-

FLORHAM PARK, N.J., June 3 /PRNewswire/ -- Companies saw a slight increase in audit fees in 2008 compared with the previous year, revealed an annual survey from Financial Executives Research Foundation (FERF), the research affiliate of Financial Executives International. The Audit Fee Survey polled more than 360 executives representing both U.S. publicly held companies (of which 76% were either "accelerated filers" or "large accelerated filers") and privately held companies, and foreign companies, to gauge the total fees companies paid to external auditors in 2008 and overall satisfaction with audit firms. The survey, which in previous years focused on SOX 404 compliance costs, has been updated to reflect the change in auditors no longer segregating fees for the internal control auditor attestation from the traditional statutory financial statement audit fees, as outlined in the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 5.

According to the survey, publicly held companies paid on average $3.7 million in total audit fees for fiscal year 2008, representing an increase of 2.2% over total audit fees paid for the prior fiscal year. In comparison, total audit fees paid by privately held companies responding to the survey averaged $219,500, a 3.7% increase over the prior year. Public company audits averaged approximately 9,881 hours in 2008, while private companies averaged about 1,903 hours.

Hourly Fees and Satisfaction:

  • For public companies, the blended audit fee rate per hour averaged $216 ($196 for non-accelerated filers and $217 for the accelerated filers).
  • For private companies, the blended audit fee rate per hour averaged $179 ($152 for the smallest companies to $230 for the largest).

This year''s survey also revealed that private company respondents are more active in seeking a new audit firm, when compared to their public company counterparts. Nearly one-quarter of the private company respondents (23%) have put their audit out for competitive bids, and 20% said that they moved to a regional or local firm (versus less than 10% of public companies). In addition, 15 of the 245 private companies plan to switch auditors, compared with only two of the 110 public company respondents. Companies that expressed intention to change auditors cited services issues as a primary concern.

"It is evident that companies continue to make progress in streamlining the costs associated with the auditing process, resulting in only slight increases in audit fees year over year," said FEI President and CEO Marie Hollein. "This year's study demonstrates that the process is less complex for public companies, which have been required to comply with Sarbanes-Oxley for up to five fiscal years. Private companies, which have had substantially less exposure to these costs in the past, are seeking more audit efficiencies."

Stronger Auditor Relationships, Use of "Big 4" Among Public Cos.

This year's survey found that an overwhelming majority of public company respondents (86%) used Big 4 audit firms, compared with only 38% of private company respondents. On average, public companies have stayed with their current auditor for about 16 years, while private companies have used their current auditor for about half the amount of time as their counterparts (approximately eight years). As such, a quarter (25%) of private companies put their engagement out for bid every four to seven years, while only a tenth (11%) of public companies put the engagement out for bid in the same time frame. The greater part of respondents (61% of public company respondents and 47% of private company respondents) said that statutory audits were negotiated at a local level.

Public Cos. Optimistic Audit Fees Will Stabilize in 2009

Public and private companies revealed similar actions in working with their auditors in 2008 - a majority of companies negotiated hard with their firms (68% of public and 56% of private) and have taken on more of the work internally (55% of public versus 51.4% of private). Despite these similarities, the expectation for audit fees in 2009 saw a surprising disparity between public and private companies. Only about a fifth of public company respondents (19%) expect their audit fees to increase next year, while 81% expect audit fees to hold relatively flat or decrease. Conversely, half (50%) of private company respondents expect to see audit fee increases of 2% to 10% next year, while 40% expect audit fees to hold relatively flat.

"After five years of Sarbanes-Oxley and extensive corporate governance reform in the U.S., and with more companies taking on an increasing amount of auditing work internally, we are at a point now where many public companies are anticipating a stabilization of audit fees," said Hollein. "Public companies have established a long standing relationship with their auditors, thus explaining their confidence in the firm's ability to reduce costs. At FEI, we continue to advocate for ways to simplify audit fees and restore confidence for both our private and public company members."

Centralized Operations Continue to Offer More Cost Efficiency

Similar to previous years, the survey found that respondents from both public and private companies with centralized operations had lower total costs of compliance in 2008 than did those respondents with decentralized operations. Public companies are split between centralized (60%) and decentralized operations (40%), while the majority of the private companies (87%) stated that they have centralized operations.

  • Public companies with centralized operations paid $3.2 million for their annual financial statement audits, while those with decentralized operations paid $4.5 million.
  • Private companies with centralized operations paid about $180,000 million for their annual financial statement audits, while those with decentralized operations paid over $244,000.

The full survey results, including costs by company size, historical cost comparisons and an executive summary are available for $129 at www.ferf.org/bookstore . For reprints and content licensing, contact Cheryl Graziano at 973-765-1064 or cgraziano@financialexecutives.org.

About Financial Executives International (FEI)

Financial Executives International is the leading advocate for the views of corporate financial management. Its 15,000 members hold policy-making positions as chief financial officers, treasurers and controllers at companies from every major industry. FEI enhances member professional development through peer networking, career management services, conferences, teleconferences and publications. Members participate in the activities of 85 chapters, 74 in the U.S. and 11 in Canada. FEI is headquartered in Florham Park, NJ, with additional offices in Washington, DC, and Toronto. Visit www.financialexecutives.org for more information.

Financial Executives Research Foundation, Inc. (FERF) is the non-profit 501(c)3 research affiliate of Financial Executives International (FEI). FERF researchers identify key financial issues and develop impartial, timely research reports for FEI members and nonmembers alike, in a variety of publication formats. The Foundation relies primarily on voluntary tax-deductible contributions from corporations and individuals.

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SOURCE: Financial Executives International (FEI)

Web site: http://www.financialexecutives.org/

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