Little Change in Audit Fees

A new survey shows modest fee growth among public companies.

Stability is the dominant theme of the Financial Executives Research Foundation’s latest annual survey of audit fees. For the most part, fees in fiscal 2010 were about the same as in 2009, while finance executives rated their auditors neutral to positive on various aspects such as the efficiency of the audit and the auditors’ technical skills.

“What’s surprising is that there’s not much that is surprising,” says William Sinnett, the foundation’s director of research. The survey was sponsored by the New York Stock Exchange.

Smaller public companies (nonaccelerated filers) reported the largest increase in audit fees, 3% on average. Large public companies reported increases of between 1% and 2%; private companies, meanwhile, saw virtually no change.

By comparison, a recent analysis by CFO indicated that a three-year slide in audit fees had begun to slow, with only three of the top eight audit firms showing a drop in fees charged as a percentage of client revenue in 2009.

The FERF data highlights the stark differences in audit fees at public companies and private companies. The average audit for a public company cost $3.3 million and took 12,540 hours, compared with $222,300 and 3,394 hours for the average private-company audit.

That difference is often explained by the fact that private companies are typically smaller than public ones. Indeed, 83% of the 124 private companies surveyed had less than $500 million in annual revenues, while only about a third of the public companies were that small. However, the data shows that for any given revenue range, public and private companies still pay vastly different prices for their audits. Public companies with revenues between $25 million and $99 million pay an average $419,300 for an audit, while private companies in that range pay $61,200 on average.

Much of that difference may be due to the additional auditing requirements Sarbanes-Oxley imposes on public companies, Sinnett says, as well as the fact that private companies are less likely than public companies to have international operations, a factor that can add cost to an audit.

Private companies may also save some cost depending on the firm they choose as auditors. Only 34% reported using a Big Four audit firm, compared with 83% of publicly held companies. Grant Thornton was the most popular alternative, with close to 10% of the private-company respondents as clients.

 

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