Companies are mitigating increases in audit fees, and in some cases are even reducing their audit costs, using some key tactics outlined in a new report from the Financial Executives Research Foundation.
FERF’s review of 2015 audit costs for all public companies found a median increase of 3.2 percent over 2014 costs. That demonstrates a trend similar to those identified in a separate analysis by Audit Analytics. However, a meaningful population of companies were able to reduce their audit costs from the prior year, FERF says. The newest report says more than 1,100 of nearly 6,500 filers, or 18 percent, saw a reduction in their audit fees from 2014 to 2015.
FERF studied some of those filers who reported reduced audit costs to explore how they achieved cost reductions. Companies reported a combination of strategies, including rethinking certain business structures or processes, aligning key controls with key risks, better documenting internal controls, better communicating with the external auditor, outsourcing internal audit, and using more technology.
The report shares anecdotal experiences of companies that explained how their strategies reduced audit costs. Several companies said that centralizing operations proved to be an important means of reducing cost because it reduced the number of locations auditors needed to visit or the number of processes requiring separate controls that must be tested.
Inspections by the Public Company Accounting Oversight Board in recent years have signaled to auditors they need to spend more time reviewing management controls, prompting companies to take measures to better align their key controls with the most relevant risks, the report says. Improved documentation has given auditors the evidence they need to move through attestations more efficiently and more effectively.
Some companies reported to FERF that they were able to outsource some key internal audit work to audit firms that bill at lower hourly rates than Big 4 firms, and external auditors could more readily rely on that work. If the company can demonstrate that the internal audit work is performed by a firm that is independent of the company and skilled and qualified to do the work, that enables external auditors to rely on it to a greater degree, the report says.