FEI Audit Fee Survey: Companies Report Modest Changes in Audit Fees in 2010

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FEI Audit Fee Survey: Companies Report Modest Changes in Audit Fees in 2010

6/9/2011
- Companies Maintain Strong Auditor Relationships -
- Public and Private Companies Differ in Risk Management Plans -

MORRISTOWN, N.J., June 9, 2011 /PRNewswire/ -- The most recent report from Financial Executives Research Foundation (FERF), the research affiliate of Financial Executives International, revealed that companies are continuing to successfully navigate the auditing process, and experiencing minimal changes to audit fees and total hours in 2010 compared with the previous year.  

The Audit Fee Survey, which is conducted annually by FERF, polled nearly 250 executives, representing both U.S. publicly held companies (of which 84% were accelerated filers with total market capitalizations of more than $75 million), privately held companies, non-profit organizations and foreign companies, to examine the total fees companies paid to external auditors in 2010 and their overall satisfaction with their audit firms. The survey, which formerly focused on SOX 404 compliance costs, was updated in recent years to reflect the shift in auditors no longer segregating fees for the internal control auditor attestation from the traditional statutory financial statement audit fees.(1)

Respondents continued to report little changes to their external audit fees in 2010.(2) Publicly held companies surveyed this year paid on average $3.3 million in total audit fees for fiscal year 2010, which represented an increase of two percent from the audit fees that these same respondents paid for the prior fiscal year audit.  Overall, executives cited internal audit staff work, and changes in company operations as some of their primary reasons for the difference in fees.  Interestingly, the survey found that the average audit fees paid by the 16 non-accelerated filers, $278,500, was reported to be 3% more than what they paid in the prior year.

Furthermore, private company respondents reported an average of $222,300 in 2010, essentially the same amount that they paid on average in the previous year. However, for the 46 companies with revenues between $25 and $99 million, the 2010 audit fees actually decreased by an average of two percent.   Private companies cited increased internal audit staff work and inflation as the central reasons for their change in fees.  With regard to man hours, public company audits averaged approximately 12,540 hours in 2010, while private companies averaged about 3,394 hours.

Financial executives also weighed in on their general relationship with their external auditors. Similar to the previous year, both public and private companies rated their auditors neutral to good across seven different criteria. The survey found that auditor tenure appeared somewhat proportional to the size of the company by annual revenues. Companies were by and large maintaining longstanding relationships with their auditors: the weighted average number of years based on all public company respondents was 21 years, while auditor relationships with private companies averaged less than half that at 8 years.

For the first time in the history of the survey, companies were also asked about their preparations for a formal risk management process. Among public companies, nearly two-thirds (66%) of respondents from large accelerated companies said that their company did have a risk management process in place, and that it had been rolled out to the entire company, but less than half (42%) of the non-accelerated filers responded this way.  

Furthermore, 41 percent of the accelerated filers stated their company had a risk management process that was only used by their headquarters. Of those companies with a risk management process in place, a clear majority of each responding group indicated that it resides with management, rather than with internal audit or the audit committee of the board of directors.  In contrast, the majority (57%) of private company respondents said that their company did not have a risk management process in place.

"Public and private companies are continuing to demonstrate overall comfort with the external audit process, and we see the fact that there are no particular surprises in fees and hours as a strong indicator of their understanding and solid relationships with their auditor," said FEI President and CEO Marie Hollein.  "Risk management will be an area of focus for finance professionals and companies moving forward, and it's encouraging to see that the large majority of accelerated companies have a plan and have communicated it to their staff.  We see this as critical exercise for companies of all sizes, and hope that more non-accelerated filers and private companies will take an active role in risk management this year."  

Scott Cutler, Executive Vice President Global Corporate Client Group at NYSE Euronext, the survey's sponsor, added:  "NYSE Euronext congratulates FEI and FERF on this year's Audit Fee Survey and related results.  We are especially pleased to note the results for public companies with audit fees having seemed to stabilize and the company/auditor relationship remaining strong.  We welcome the continued focus on risk management oversight by companies, their management and Boards and continue to support their collective efforts in this area."

Other key findings from the survey include:

  • Public companies responding to the survey were, on average, larger than the private companies responding in terms of annual sales revenues.

  • For both public and privately-held companies, the average audit fees of companies with centralized operations were significantly less than those with decentralized operations, similar to previous years. On average, public companies with centralized operations paid $2.9 million for their annual financial statement audits, while those with decentralized operations paid $5.3 million.  

  • A greater percentage of public company respondents (83%) used Big 4 audit firms than did private company respondents (34%). Among public companies, Ernst & Young was the most common audit partner (25%), followed by KPMG (20%).

  • Most large accelerated filers (83%) list their shares on the NYSE Euronext Stock Exchange, while most of the smaller publicly-held companies list their shares on NASDAQ.

Additional findings include an analysis of the overall audit experience for companies. Detailed figures for audit fees are available online through AuditFeeCheck, FEI's online search tool. Responses can be searched based on all criteria, including industry, company type and company size. AuditFeeCheck is available on the FEI website.

Results are free for FEI members, and nonmembers can purchase the survey results for $249, by visiting the FERF bookstore online at www.ferf.org/bookstore.

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.

(1) As outlined in the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 5.  

(2) The averages reported in this year's Audit Fee Survey are not comparable to those reported in the 2010 Audit Fee Survey, as the companies included this year's respondent sample are different than those in last year's respondent sample .

SOURCE Financial Executives International (FEI)