New accounting standards along with mergers and acquisitions are driving modest increases in audit fees, according to a new survey from the Financial Education & Research Foundation.
In a FERF poll of a variety of organizations, public company respondents said they saw a 2.5 percent median increase in audit fees in 2017. FERF’s poll the year before suggested audit fees rose only by about 1.3 percent. Private companies indicated a little more upward movement in audit fees, reporting a median increase of 3.2 percent.
Nearly half of public companies said their particular movement in audit fees can be attributed to changes in accounting standards, especially Accounting Standards Codification Topic 606 on revenue recognition. Calendar-year public companies began complying with the new five-step method for recognizing revenue under ASC 606 in 2018.
Another one-third of public companies said they can attribute changes in audit fees to business acquisitions, while 12 percent indicated a divestiture affected audit fees. Roughly one-fourth of public companies indicated they negotiated fees with their audit firm in a way that affected the final fee amount, and a smaller percentage indicated inflation was a factor.
Changes in internal control also produced changes in audit fees, but only 15 percent of public companies flagged it as a driver. Only 14 percent of public companies said they could attribute changes in audit fees to a specific focus on manual controls as a result of inspection findings by the Public Company Accounting Oversight Board.
Large accelerated filers managed to keep a lid on audit cost increases a little more than accelerated or non-accelerated filers, the data suggests. Large accelerated filers reported a median increase of 2.2 percent, while accelerated filers landed at 2.6 percent and non-accelerated filers at 3.2 percent.
Public companies suggested the effort associated with internal controls reporting may be leveling off after several years of tension and increased activity stemming from PCAOB inspections. One-third of public companies said the external auditor’s volume of work around internal control increased in the prior year, but two-thirds said the volume of work did not increase.
Similarly, 36 percent of public company respondents said they have seen an increase in their overall costs to comply with Sarbanes-Oxley, while 53 percent said they saw no change and 11 percent saw those costs decrease.
“The last year has seen financial departments focus heavily on improving audit management and control strategies through smarter use of human resources and technology,” said Andrej Suskavcevic, president and CEO of FERF and Financial Executives International. “Inevitably, complying to new standards and oversight requirements brings new responsibilities and, in some cases, additional work and related fees.”