The Financial Executives Research Foundation (FERF), the research affiliate of Financial Executives International (FEI), has released its annual survey of audit fees. The 14th Annual Public Company Audit Fee Report, sponsored by the Center for Audit Quality, is available here for purchase. According to FEI’s publicly-available press release, the FERF study finds that average audit fees increased 4.6 percent from 2021 to 2022. By comparison, earlier this year Ideagen Audit Analytics reported that the average audit fee for SEC-registered public companies increased 11 percent over 2021. See The Average Audit Fee Reached an All-Time High in 2022, August-September 2023 Update.
The FERF report covers fees companies paid to external auditors for auditing and related services between June 2022 and May 2023 and is based on responses from 54 financial executives at public companies and a survey of 116 audit engagement partners. FERF also examined audit fees as reported by approximately 7,060 SEC filers. In addition to the audit fee increase, FEI’s press release highlights several other FERF findings:
Increasing management effort to support the audit. Forty-seven percent of company respondents reported an increase over 2021 in management effort to support the external audit (51 percent reported no change). Twenty-one percent cited acquisitions as the primary driver of the increased management effort; additional reasons noted were changes to internal control over financial reporting and divestitures.
Auditor use of data analytics. Eighty-nine percent of preparers indicated that their auditor used advanced data and information analysis as part of their audit processes, while 80 percent of audit partners said they used data analytics or other emerging technologies in a 2022 audit. Sixty-four percent of preparers whose auditor employed emerging technologies thought their use improved audit quality, up from 49 percent in the prior survey.
More in-person auditing and auditor/client interaction. Fifty-five percent of surveyed audit partners expect that their team will spend more than 50 percent of its time together on-site at the client or at the firm office during peak times; less than 25 percent had this expectation in the prior survey. Similarly, 43 percent of preparers expect their finance and accounting teams to spend 50 percent or more of their time onsite supporting the financial statement audit during peak times, compared to less than 15 percent who had this expectation last year.
Financial reporting will incorporate AI. Thirty-six percent of preparer respondents plan to incorporate artificial intelligence into their financial reporting process within the next five years.
Rising climate risk disclosure. Seventy percent of preparers indicated that their company disclosed climate-related risks that management considered in the preparation of the most recently filed annual financial statement. Ninety-two percent of S&P 500 companies mentioned climate-related risks in the risk factors disclosure section of their most recent Form 10-K.
Audit committees may want to consider whether any changes in their audit fee, or in management effort to support the audit, parallel those of similar companies and the reasons for any differences.