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How Do Your Audit Fees Stack Up?

Ed Zwirn | June 15, 2011
The average public-company fee crept up 2 percent last year, a study shows, while average billing was for 12,540 hours of audit work.

Audit costs increased modestly last year, according to a survey from the Financial Executives Research Foundation, the research arm of Financial Executives International.

Polling nearly 250 executives who represent both U.S. publicly held companies and private companies, along with some non-profit organizations and foreign companies, the survey found that publicly held companies paid an average US$3.3 million in total audit fees for fiscal 2010, an increase of 2 percent from the audit fees that these same respondents paid for the prior fiscal year audit.

Private company respondents reported an average fee of US$222,300 in 2010, essentially the same amount that they paid for audits in the previous year. The average public company was billed for about 12,540 hours of audit work in 2010. Audits for private companies averaged about 3,394 hours.

'No Particular Surprises'
"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.

Overall, financial executives cited internal audit staff work, and changes in company operations as some of their primary reasons for the difference in fees.

Among both public and private companies, the average audit fees of those with centralized operations were significantly less than those with decentralized operations, as was also true in previous years. On average, public companies with centralized operations paid US$2.9 million for their annual financial statement audits, while those with decentralized operations paid US$5.3 million.

In terms of what companies did the audits, Big 4 firms continued to dominate the public-company market last year. Among those companies, 83 percent used a Big 4 firm. As for private companies, the Big 4 was used 34 percent of the time.

Among public companies, Ernst & Young was the most frequently used auditor (25 percent), followed by KPMG (20 percent), Deloitte (19 percent) and PriceWaterhouseCoopers (17 percent.)

The results for privately held companies were more spread out, with 11% using PWC for audits last year, followed by Ernst & Young at 10 percent and Grant Thornton at 9 percent.

Auditors for Life?
Auditor tenure seemed to register as somewhat proportional to the size of the company. While the weighted average auditor tenure for public companies was 21 years, companies with more than US$25 billion in revenues reported keeping the same auditor an average of 50 years, and the smallest companies in the survey–with revenues of less than US$25 million–had auditors with tenure of less than 10 years.

Asked how often companies put their audit engagements out for bid, a clear majority of companies in the survey reported doing so only when they decided to switch auditors. This was more pronounced (89 percent) for accelerated companies–those with more than US$700 million in revenues–while 57 percent of U.S. non-accelerated filers put audits out for bid only when deciding to switch. Some 60 percent of private companies gave this answer.

The 62 percent of public companies reporting centralized operations paid an average US$2.9 million for their annual financial statement audits, while those with decentralized operations paid US$5.3 million.

 

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