Total audit fees increased in fiscal year 2021 as the number of Securities and Exchange Commission (SEC) registrants reached its highest total in six years, according to the latest annual report.
Audit Analytics’s 20th annual review of audit and non-audit fee trends at public companies found total audit fees grew 3.3 percent from 2020, to $18.9 billion. Primarily driving the increase was the larger number of registrants at 7,133, the most since 7,150 were included in 2015.
New accounting standards for revenue, leases, and credit losses have become effective in the past three years, requiring significant changes to registrants’ accounting and financial reporting processes and controls. These changes increase audit complexity and require more audit hours (and higher audit fees).
In 2021, audit fees increased 2.9 percent, audit-related fees increased 10.2 percent, total tax fees decreased 0.8 percent and were at their lowest point since 2011, and other fees increased 3.0 percent.
Average audit fees increased approximately 1.6 percent in 2021 to $2.2 million, after declining more than 7 percent from 2019 to 2020. Average audit fees in 2020 included negative impacts on audit work because of the Covid-19 pandemic and more special purpose acquisition company (SPAC) audits with relatively lower audit fees than other public companies. The 2021 average remained lower than the averages in 2018 and 2019; there has been a trend of increasing average audit fees for both U.S. and foreign companies—other than 2020—since the implementation of the Sarbanes-Oxley Act.
Audit fees per million dollars of revenue declined in 2021 to $594 as revenues returned to levels before the negative impacts of the pandemic. Revenues increased at a faster rate than total audit fees for both U.S. and foreign companies, the report found. Historical trends in fees per dollars of revenue statistics were affected by the 2020 change in the SEC’s definition of accelerated filers, which resulted in hundreds of companies having their filing status changed to non-accelerated filer and no longer being required to obtain audits of their internal controls.
Non-audit fees as a percentage of total fees fell for a seventh consecutive year in 2021, reaching a low point of 8.9 percent. This ratio is a way to assess how audit firms comply with independence requirements for providing non-audit services to their public company clients. The report attributed the declines to the continued global focus by regulators on safeguarding auditor independence by restricting certain non-audit services and increasing reporting and monitoring to ensure compliance.
Non-audit fee percentages remained relatively consistent between 10 and 12 percent of total fees from 2005-19 but were as high as 36 percent in 2002.
The Big Four firms have more than 90 percent of the 2021 audit market share for public companies based on audit fees, according to the report. PwC leads the way at 29 percent, followed by EY (26 percent), Deloitte (21 percent), and KPMG (17 percent).
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