Supervizor | Why are our audit fees rising and how can I make it stop?

My audit fees keep increasing – is it worth it? 

Every year that dreaded email comes in with your audit invoice; The cumulation of audit fees, FISDI fees, benefit plans, and a slew of other charges sum to form a massive expense for your company. For years now, companies have been noticing a rise in their audit fees and have wondered one simple question: why? 

In this article you will understand how much audit fees have been increasing, why they rise, and how to decrease audit fees for your company. 

We owe how much money? 

Average audit fees have increased from $216 per hour to $283 per hour between 2009 and 2019. This is a 4.25% yearly increase in fees, much higher than the U.S. inflation rate. According to a survey by Gartner, 62% of company executives expect external audit fees to continue increasing. 

One might argue that the price increase reflects the quality of the audit, but research has indicated otherwise. The establishment of the Sarbanes-Oxley Act, which comes with its own set of requirements, led to an improvement in audit quality by forcing out poor-quality auditors. After this one-time quality increase, audit quality has remained constant while audit premiums have been constantly rising. This means that the quality benefits of auditor premiums have decreased over time.  

If I’m not getting higher audit quality, then why are the fees rising so much?  

So why are audit fees increasing. According to a survey of CFOs by the Financial Education and Research Foundation, there are a few roots to the problem. Over one half of CFOs blamed new critical audit matters (CAMs) and accounting rules for these increases with the other half split between acquisitions and revenue recognition. Whenever new rules are released, all companies must understand the ordinances to see if they need to apply them. Even if the company finds that they do not need to comply with a new CAM, they still must produce documentation demonstrating that they understand the regulation and why it doesn’t apply to them. This means that, whether these new rules apply to a company, the external auditor still must take hours to review the documentation. 

It's worth mentioning the macro factors that affect audit fees: inflation and covid. Audit fees are rising at a rate higher than inflation, as discussed earlier, but inflation is still a part of that increase and COVID-19 has put financial burden on companies across all sectors.  

Help!! How do I lower my fees?! 

Luckily, there’s a solution: automation. Automation can decrease audit fees from 27% to 52% depending on the size of the company and the number of controls that are automated [Figure 1]. In addition to reducing audit costs, internal control automation also reduces financial reporting and audit risks. The earlier a company invests in internal control automation; the more likely future audit fee reductions are. 

Figure 1: Internal Controls Automation Impact, 2020 

Auditors need to take the time to familiarize themselves with a company’s ERPs, transaction software, and data organization. These consulting hours are, of course, billable, and add up over the course of the audit. Using an automated solution stores data in a central platform that external auditors can access. As a result, they don’t need to understand how a business works to perform their audits, they can just get the information from the platform.  

At the end of the day, all signs point to audit fees continuing to rise. Internal control automation is the saving grace for every company. Bringing an end to manual sampling and testing and reducing external auditing hours, you’ll find yourself looking forward to your annual audit invoice, not dreading it.