Audit Analytics (AA) has released Twenty-Year Review of Audit Fee and Non-Audit Fee Trends, its annual analysis of fees paid to external auditors. After a decline in 2020, average audit fees increased in FY 2021, although the average fee remained below 2019 levels. But, from one perspective, audits seem to be getting cheaper. Despite the increase in the average fee, the ratio of audit fees to company revenue fell in 2021 as revenues rebounded from a decrease during the COVID-19 pandemic. AA also found that the trend away from providing non-audit services to audit clients continued in 2021. Non-audit fees (exclusive of audit related fees) as a percentage of total fees hit an all-time low in FY 2021 of 8.9 percent. (AA’s prior audit fee report is discussed in Audit Fees Declined in 2020, But Don’t Get Used to It, January-February 2022 Update.)
Findings of the Twenty-Year Review that may be of particular interest include:
In 2021, aggregate total fees (including for audit, tax, and other services) paid to the external auditor by SEC reporting companies grew 3.3 percent from 2020, to $18.9 billion. AA states that the aggregate fee increase was primarily a result of an increase in the number of SEC registrants from 7,041 to 7,133. Aggregate audit fees increased 2.9 percent, while audit-related fees increased 10.2 percent. Total tax fees decreased by 0.8 percent, continuing the downward trend that began in 2018. The total amount of other/miscellaneous fees increased by 3.0 percent.
The average SEC registrant audit fee increased about 1.6 percent to $2,176,000 in 2021. Average audit-related fees increased to $239,000, and average tax fees decreased to $203,000, the lowest since 2014. The average amount of fees classified as "other" remained stable.
When analyzed by company size, the changes in the average audit fee present a more varied picture. The average audit fee rose slightly for smaller companies in 2021 but fell for larger companies. Average audit fees for non-accelerated filers increased by 1.3 percent, while the accelerated filer average audit fee decreased by 12.7 percent and the average large accelerated filer audit fee fell by 8.8 percent.
Audit fees per million dollars of revenue declined to $594 in 2021. AA states that “this was expected, as revenues returned to pre-pandemic levels.”
As a percentage of total fees, non-audit fees (exclusive of audit-related fees) declined to 9 percent in 2021. By comparison, in 2002 such fees were approximately 36 percent of total fees paid to the external auditor.
In the introduction to its report, AA points out that audit fees are an indicator of audit complexity and risk because “[h]igher risk audits require more auditor resources (hours, personnel, specialists, etc.) to reduce audit risk to an acceptable level.” Accordingly, “[a]nalyzing fees by industry, company size, and location can provide insight into the level of risk and auditor effort various sectors of publicly listed companies entail.” From an industry perspective –
The 2021 highest average audit fees were in Transportation ($3.015 million) and Finance ($2.375 million). The industries with the lowest average audit fees were Agriculture ($1.312 million) and Mining ($1.472 million).
The 2021 highest audit fees per million dollars of revenue were in Agriculture (approximately $1,500) and Services (approximately $1,000). The lowest fees per million dollars of revenue were in Retail Trade (approximately $175) and Wholesale Trade (approximately $250).
Comment: Audit committees may find it useful to compare changes in their company’s fees with the information in the AA report. Committees might also want to focus on how their non-audit fees compare to the broad metrics. As noted, AA found that in 2021 non-audit fees, as a percentage of total fees paid, reached the lowest level since AA began complying this data. AA observes that there has been “a global focus on restricting certain non-audit services to safeguard auditor independence.” Beyond regulatory restrictions, many audit committees have limited their company’s use of the financial statement auditor for non-audit services in order to avoid questions about the possible impact of such services on auditor objectivity.