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Accounting

Audit Fees Increases Hinge on Size and Situation

Acquisitions, reviews of internal controls and inflation continue to be among the leading factors driving increases in audit fees, although large accelerated filers and accelerated filers report success in mitigating the size of audit fee increases.
 
The annual Audit Fee Survey by Financial Executives Research Foundation (FERF), the independent, non-profit research affiliate of Financial Executives International (FEI), found audit fee trends are diverging among companies of different sizes and types.
 
In the 2015 audit year, the median increase for all filers reviewed through SEC filings was 3.2 percent, with public companies that responded to our survey reporting a median increase of 1.6 percent and privately held filers, also surveyed, reporting a median increase of 2.9 percent.
 
Median fee increases also varied by company size, with non-accelerated filers reporting higher median increases than large accelerated filers, accelerated filers and smaller reported companies.
 
The survey results indicate fee trends are diverging among companies of different sizes. Over the past four years, large accelerated and accelerated filers experienced declines in the size of their median audit fee change. Large accelerated filers, for instance, saw average increases decline from a median 5.5 percent in 2012 to 3.8 percent in 2015.


 
In contrast, non-accelerated filers report median fees increasing from 1.8 percent in 2012 to 4.8 percent in 2015.
 
This likely suggests larger companies have had greater success with efforts to mitigate audit fee increases or to reduce audit fees, such as increasing audit preparedness, negotiating with auditors, improving internal controls, and other initiatives.
 
Other Key Findings From SEC Filings Include:
 
  • Audit fees paid by the 6,490 unique filers for their 2015 audits averaged $1.8 million, with a median of $522,205.
 
  • The average percentage increase in audit fees was 32.5 percent and the median increase, which reduces the effect of outliers, was 3.2 percent.
 
  • The median increase in audit fees by filer status was greatest for non-accelerated filers at 4.8 percent, and least for smaller reporting companies at 2.3 percent.
 
  • Over 1,100 filers experienced a decrease in audit fees.
 
  • However, over 300 filers experienced an increase in fees of more than 100 percent. These “outliers” tend to explain the significant difference between the average increase of 32.5 percent and the median increase of 3.2 percent.
 
  • Almost one-fifth of SEC filers reported ineffective internal controls over financial reporting (ICFR).
 
  • For fiscal 2015, the median increase in audit fees for companies with ineffective internal controls was 5.1 percent, almost two percentage points higher than the median for all SEC filings reviewed.
 
In addition to the analysis of SEC filing information on audit fees provided by MyLogIQ, this report also provides an analysis of responses to FERF’s annual audit fee survey, with responses submitted by executives from public companies, privately held companies, and non-profit organizations.
 
Key Findings From Survey Responses:
 
Public Companies
Audit fees paid by the 89 public companies responding to the survey averaged $6.5 million, with a median of $2.4 million.
 
The average percentage increase in audit fees reported was 4.5 percent, and the median increase was 1.6 percent.
 
The average number of audit hours reported was 22,539 ($268/hour), with a median of 13,200 ($193/hour).
 
Privately Held Companies
Audit fees paid by the 126 privately held companies responding to the survey averaged $258,935, with a median of $102,059.
 
The average percentage increase in audit fees reported was 6.1 percent, and the median increase was 2.9 percent.
 
The average number of audit hours reported was 1,898 ($184/hour), with a median of 1,000 ($195/hour).
 
Non-Profit Organizations
Audit fees paid by the 30 non-profit organizations responding to the survey averaged $159,844, with a median of $84,625.
 
The average percentage increase in audit fees reported was 6.2 percent, and the median increase was 2.3 percent.
 
The average number of audit hours reported was 1,935 ($197/hour), with a median of 1,400 ($173/hour).
 
 
Audit Fees for 2015
Audit fee information obtained from SEC filings has been provided by MyLogIQ. A total of 10,013 unique filers were reviewed. Of this total, 6,490 filers reported audit fees for both 2014 and 2015, so their percentage change in audit fees could be calculated. MyLogIQ has also provided audit fee information for 2012 and 2013 for comparison.
 
Audit fees paid by the 6,490 unique filers for their 2015 audits averaged $1.8 million, with a median of $522,205. Based on amounts reported by these filers, the average percentage increase in audit fees was 32.5 percent and the median increase was 3.2 percent. (The median figures reduce the effect of outliers.)


 
The median increase in audit fees by filer status was greatest for non-accelerated filers, 4.8 percent, and least for smaller reporting companies, 2.3 percent.
 
This year, 51 of the 89 public companies (57 percent) responding to the survey indicated they experienced an increase in audit fees. About one-third (31 percent) of these respondents checked “acquisition” as a reason for an audit fee increase. One-fifth (22 percent) checked “review of manual controls from PCAOB inspections.”
 
Other reasons cited in this year’s findings included:
  • Recent restatement of prior period financial statements and existing material weaknesses;
  • Minor control deficiency remediation work and additional substantive testing;
  • Any deviation from test incurs additional fees;
  • Recently went public, putting SOX in place;
  • Additional statutory audits required in international locations and system implementation;
  • Auditor’s new SOX standards related to interpretation of PCAOB rulings; and
  • Auditor’s new approach around risk assessment.
 
Acquisition, cited by nearly a third of respondents, was cited as a key factor behind audit fee increases – perhaps not surprising given the record-setting $4.3 trillion globally (according to Dealogic) in 2015 mergers and acquisitions.
 
Methodology and Sources
FEI’s annual Audit Fee Survey report examines total fees companies paid to external auditors on auditing and related services in 2015. The report is based on responses from 245 financial executives at a mix of public companies, private companies and non-profit organizations. In addition, the report also examines audit fees as reported by the larger pool (6,490) of SEC filers. 
 
Audit fee information obtained from SEC filings has been provided by MyLogIQ. The survey was sponsored by Workiva. Survey results are free for FEI members by clicking here.