Public and private companies in the U.S., as well as non-profits, saw an overall increase in their audit fees in 2013 over the previous year, with public company fees being particularly impacted by recent Public Company Accounting Oversight Board (PCAOB) inspections, according to the Audit Fee Survey of the Financial Executives Research Foundation (FERF).
The increase may be an indicative of audit fees in Asia as well.
Sponsored by Silicon Valley Accountants and Hyland, this year’s survey revealed that public companies paid on average $7.1 million in audit fees, representing an increase of 4.5 percent over last year’s audit fees paid. This may be an indicative of audit fees in Asia as well.
Of those that responded, the number of audit hours required for a public audit averaged 17,525; which is estimated to be an average of $249 per hour.
Respondents indicated that the increase in their audit fees was primarily due to the review of manual controls resulting from PCAOB inspections, as well as other PCAOB issues.
Sixty-three percent of public companies whose audit firm was subject to the PCAOB’s oversight review indicated that their audit firm shared the comments they received from the PCAOB.
In addition, 60 percent of these respondents were required to change their controls, and 80 percent changed their control documents as a result of the PCAOB requirements or inspection feedback.
In comparison, the total audit fees paid by privately-held company respondents in 2013 averaged $174,858, which respondents indicated was 3.7 percent higher than last year.
Of note, private company respondents with less than $25 million in annual revenue experienced on average nearly a 12 percent increase in their audit fees from the previous year.1 The number of audit hours required for a private company averaged 2,927 hours, estimated to be $179 per hour.
Non-profit organizations paid an average annual audit fee of $73,023 in 2013, representing an increase of 1.5 percent. The majority of private companies (60%) and non-profit organizations (67%) attributed the increase to inflation.
Increase in internal cost of compliance
The survey also revealed that more than half of public company respondents (57%) indicated an increase in internal cost of compliance with Sarbanes-Oxley Section 404 within the past three years. However, many stated they believe they now have improved internal controls, making it worth the additional overall expense.
The large majority of public company respondents (92%) stated that their boards annually assess their audit firm’s performance and independence qualifications. Sixty-one percent of private companies and 65 percent of non-profits indicated that their boards annually assess their audit firm’s performance and independence qualifications.
Public companies have used their audit firm for an average of 23 years, nearly three times the average auditor relationship reported by private companies and non-profit organizations (8 years).
Ninety-one percent of public companies use the “Big Four” audit firms. Regardless of the length of service, responses received from public companies indicate they are all compliant with the five year lead partner rotation rules.