Top 10 Ways to Cut Your Audit Bill

Our list ranges from beefing up internal audit to avoiding posh steakhouses for those working lunches.

Think there’s no way around sky-high audit costs? Think again. A recent study of 1000 companies by The Hackett Group found that the average company spends $584,000 per $1 billion of revenue on audit fees. The companies that earned the “world-class” designation, based on a variety of factors, however, paid only $307,500 per billion— nearly 50 percent less.

What sets the best apart from the rest? Below, we offer tips and advice from Hackett and a number of finance executives on how to winnow down audit costs.

1. Beef up internal audit staff. Jeffrey Jones, CFO of $828 million Vail Resorts, added staff to his internal audit group last year and dedicated some to helping the auditors through the company’s Sarbanes-Oxley compliance efforts. He found that the salaries paid for themselves within a year thanks to a reduction in audit fees. “Plus, you get to utilize the incremental staff all year round,” Jones notes.

Indeed, Bryan Hall, Hackett finance-practice practice leader and co-author of the study, says the key differentiator at companies with lower audit costs is that external auditors feel they can rely on the work of the internal auditors.

2. Set expectations with auditors. Hold at least two planning sessions with your internal team and the audit firm before the audit starts and agree to a schedule, says Steffan Tomlinson, CFO of Aruba Networks. Don’t skimp on the details, either—he recommends that you “probe and agree on the number of transactions the auditing firm will do in each category.”

3. Kill (or save) some trees ahead of time. Nothing the auditors ask for should be a surprise, so all the necessary analyses and paperwork should be done by the time they walk in the door. At Vail Resorts, Jones has some of his newly-hired staff prepare “very detailed support binders which contain support for every single number which is included in any public filing.” Appoint one person to handle auditor information requests, and make copies of the documentation so that you don’t have pass it back and forth. Better yet, set up the documentations electronically, and save some trees. Just do it before the auditors arrive.

4. Keep your auditor on speed-dial. Art Technology Group CFO Julie Bradley says she keeps her auditors in the loop on all major developments throughout the year, from acquisitions to how the company plans to comply with new accounting pronouncements. To jog the auditors’ memories at year-end, she summarizes those decisions in memos.

During the audit itself, Tomlinson advises his peers to hold daily 15- minute status checks with the senior auditor or managing partner on the account, as well as weekly or bi-weekly meetings with the broader team to make sure the schedule is going according to plan.

5. Consider creative ways to split up the work. Although IPG Photonics CFO Tim Mammen uses Deloitte to audit his company’s consolidated financial statements, he calls on smaller overseas accounting firms to handle foreign tax work for IPG’s operations in Russia and Germany. He says the overseas firms are experts in their local tax laws, and that they cost about 60 percent of what Deloitte would charge.

6. Avoid change. To the extent possible, negotiate for the same audit team year to year, and aim for auditors with more experience. “This avoids needless time bringing new auditors up to speed,” says Tomlinson.

7. Baseline your controls. Chris Spivey, vice president of business process services at MIS Group and a consultant to companies that are putting in enterprise-resource-planning systems and new controls, says that doing a full audit of controls in the first year but then not re-auditing them in later years unless a major change is made represents a “huge cost-saving opportunity.”

Spivey notes that although baselining was allowable before AS5, the Public Company Accounting Standards Board’s guideline for auditors attesting to their clients’ internal controls. But it’s still not commonly used. CFOs and controllers will likely have to show their auditors documentation that nothing has changed and remind them that “you don’t have to put hours against it again this year,” he says.

Be aware, though, that some experts consider baselining controversial. “I’m not sure that testing less frequently is within the spirit of SOX,” says Hall.

8. Take a hard look at how many legal entities your company maintains. “Legal structure does add audit complexity,” says Hall. While it’s hard to pinpoint the average marginal cost of each entity, since some may create cost-savings through tax benefits, Hall notes that world-class companies in his study had 9.6 legal entities per billion of revenue, while average companies had 18.9.

9. Do a hard monthly close. In that way, the work of ending the quarter could merely amount to that of adding a month.

10. Bring in lunch. That should help control the costs of those working sessions with auditors—assuming you skip the steak.

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