Morristown, N.J. – The Financial Education & Research Foundation (FERF)—the independent non-profit research affiliate of Financial Executives International (FEI)—today released the findings of its 14th Annual Public Company Audit Fee Study. The study looks at various factors affecting financial reporting and external audits.
Overall, average audit fees increased by 4.6 percent from 2021 to 2022. Forty-seven percent of member company respondents also indicated an increase in effort to support the external audit while 51 percent reported no change year over year. Twenty-one percent noted acquisitions as the primary driver of the increase in management’s effort to support the external audit, which was consistent with 2021 and 2020. Additional reasons cited were changes to ICFR followed by divestitures.
Notably, communication was better following COVID-induced remote work environments and even enhanced the quality of the audit, with 81 percent of public companies indicating they were happy with their audit.
90 Percent of Public Companies Reported Their Auditors are Bringing Data Analytics to The Audit
Consistent with the prior year, 89 percent of preparers surveyed indicated that their auditor used advanced data and information analysis as part of their audit processes. Almost 80 percent of audit partners surveyed indicated that they used data analytics and/or other emerging technologies as part of their most recent audit in 2022, reflecting a five percent increase over the prior year. Notably, 64 percent of preparer respondents whose auditor employed emerging technologies felt their use resulted in improved audit quality, as compared to the 49 percent who expressed such a view in the prior year survey.
A Majority of Audit Team’s Time Will be Spent In Person to Support the Audit
While it is difficult to know if the financial reporting ecosystem will ever fully revert to pre-pandemic operations, it appears many companies and their auditors are continuing to increase in-person engagement.
- More than 55 percent of audit partner respondents indicated they expect that their audit team will spend more than 50 percent of their time together on-site at the client or at the firm office during peak times, compared to less than 25 percent of audit partners who indicated they had this expectation in the prior year survey.
- In the current year, 43 percent of preparer respondents cited, that, moving forward, they expect their finance and accounting teams to spend 50 percent or more of their time on-site supporting the financial statement audit during peak times, compared to less than 15 percent who indicated such in the prior year.
While there may have been a period during which auditor and preparer expectations about in-person engagement differed, challenges in this area appear to have eased. Sixty-five percent of audit partner respondents in this year’s survey indicated that their expectations regarding the amount of time their team will spend together in-person are aligned with those of their engagement team.
Although in-person engagement is increasing, the strong communication strategies that have been adopted, along with the available virtual collaboration platforms and other technologies, will continue to allow preparers and auditors flexibility in how they work. They will also continue to provide a broader pool of talent from which to draw, which will be critical given the challenges discussed as related to the demand and shortage for accounting personnel.
The Impact of AI on Financial Reporting
Auditors and preparers are beginning to discuss AI adoption plans.
- 36 percent of preparer respondents indicated they plan to incorporate the use of AI into their financial reporting process within the next five years
Many Companies are Starting to Incorporate Sustainability Reporting
The shift from voluntary to mandated sustainability reporting remained a major topic of focus for preparers and their auditors.
- 70 percent of preparer respondents indicated they disclosed climate-related risks that were considered in the preparation of their most recently filed annual financial statement, a slight increase compared to the previous year
- 80 percent of respondents cited data gathering and aggregation of climate-related information as the most significant impact on a client related to the SEC’s proposed climate-related disclosures rule
- 92 percent of S&P 500 companies mentioned climate-related risks in Item 1A (Risk Factors) of their most recent Forms 10-K
“This is perhaps one of the most important periods for the future of financial reporting,” said Andrej Suskavcevic, CAE, President and CEO of Financial Executives International and Financial Education & Research Foundation. “Over the past few years, we experienced many transformative events in the profession, such as Accounting Rules (ASC 606, 842, CECL), corporate digital transformation, and the turbulence caused by COVID-related impacts. As we look forward, there are numerous changes on the horizon that auditors and preparers will need to traverse including SEC’s rules for Climate and Cyber Security and transformative technologies. Our members and their auditors will need to use the knowledge gathered over the past years and apply lessons learned to successfully navigate what’s ahead.”
Methodology and Sources
The FERF 2022 Public Company Audit Fee Study Report examines audit fees companies paid to external auditors for auditing and related services for the period between June 2022 and May 2023. The report is based on responses from 54 financial executives at public companies and an additional survey of 116 audit engagement partners. In addition, the report also examines audit fees as reported by nearly 7,060 SEC filers.
Audit fee information obtained from SEC filings was provided by idaciti. The survey was sponsored by the Center for Audit Quality (CAQ), an organization dedicated to promoting high-quality performance by U.S. public company auditors and advancing the discussion of critical issues affecting investor trust in the U.S. capital markets. The CAQ also contributed to this report by conducting a survey of audit engagement partners.
The 14th Annual Public Company Audit Fee Study Report can be obtained by visiting the online FERF bookstore at www.financialexecutives.org/research.
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About Financial Education & Research Foundation, Inc.
Financial Education & Research Foundation (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. FERF relies primarily on voluntary tax-deductible contributions from corporations and individuals, and publications can be ordered by logging onto www.financialexecutives.org/research.
About FEI
Financial Executives International (FEI) is the leading association and advocate for the views of corporate financial management. Its members hold policy-making positions as chief financial officers, chief accounting officers, controllers, treasurers, and tax executives at companies in every major industry. FEI enhances Member professional development through peer networking, career management services, conferences, research, and publications. Members participate in the activities of local Chapters in the U.S. FEI is located in Morristown, NJ. Visit www.financialexecutives.org for more information.
About idaciti
idaciti was founded by a team passionate about financial analysis and reporting who wanted to provide financial professionals with a modern software solution to solve their biggest challenges. The company founders realized that financial professionals needed a tool to make accessing, analyzing and visualizing financial and non-financial data easier and more intuitive. By using XBRL to parse public records, idaciti is able to provide this data and then makes it possible for users to visualize the data they discover on the platform to build clear and compelling reports.
For more details visit us at www.idaciti.com.
About the Center for Audit Quality (CAQ)
The Center for Audit Quality (CAQ) is a nonpartisan public policy organization serving as the voice of U.S. public company auditors and matters related to the audits of public companies. The CAQ promotes high-quality performance by U.S. public company auditors; convenes capital market stakeholders to advance the discussion of critical issues affecting audit quality, U.S. public company reporting, and investor trust in the capital markets; and using independent research and analyses, champions policies and standards that bolster and support the effectiveness and responsiveness of U.S. public company auditors and audits to dynamic market conditions.
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