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FERF Finds that Audit Fees Continue Their Upward March

The Financial Executives Research Foundation (FERF), the research affiliate of Financial Executives International (FEI), has released the 2020 results of its annual survey of audit fees. The 11th Annual Public Company Audit Fee Report, sponsored by the Center for Audit Quality, is available here for purchase. The study finds that average audit fees increased six percent from 2018 to 2019. This continues the trend of recent years. For example, the 2018 FERF audit fee survey, discussed in FERF: The Median Public Company Audit Fee Rose in 2017, But Some Companies Have Found Ways to Avoid Paying More, January-February 2019 Update, found that the median public company audit fee rose 2.5 percent in 2017.


The 2020 FERF report examines fees paid to external auditors for auditing and related services between June 2019 and May 2020. The study is based on two surveys and on data from SEC filings. FERF states that more than 50 financial executives at public companies responded to its survey, along with an additional survey of 88 audit engagement partners. Idaciti. a provider of financial and non-financial data, obtained audit fee information from the SEC filings of roughly 6,200 public companies for the study.


According to the February 25 edition of FEI Daily, FERF found that the average audit fee increased from $2.315 million in 2018 to $2.455 million in 2019. The increase was not, however, uniform across companies. The biggest companies, large accelerated filers, experienced a 5 percent increase in average audit fees paid, while the next tier, accelerated filers, experienced a 12 percent increase. For smaller public companies (non-accelerated filers), the average audit fee fell 9 percent.


Fifty-seven percent of survey respondents attributed higher fees to increases in audit scope. Scope increases were, in turn, frequently driven by new accounting standards, such as those related to lease accounting and current expected credit losses. Fifty-six percent of public company respondents cited accounting standards changes as the major driver of fee increases, while 21 percent cited acquisitions. In contrast, 42 percent of auditor respondents thought that changes to internal controls over financial reporting “contributed most” to their effort to complete the most recent audit. FERF also reports that most public company respondents said that the external audit enhanced the quality of the company’s financial reporting.


FERF’s publicly-available press release highlights several other interesting findings of the 2020 report:

  • Sixty-nine percent of public company respondents indicated that their audit and quarterly reviews were impacted by COVID-19. Virtual execution of internal controls (cited by 50 percent of company respondents) and virtual retention of internal control documentation (cited by 48 percent) had the greatest effect on audits and quarterly reviews.

  • Sixty-two percent of auditors stated that COVID-19 and auditing in a remote environment increased audit and quarterly review effort. From the perspective of these engagement partners, the aspects of the audit most impacted by the pandemic were managing and training teams in a virtual environment (cited by 72 percent), client inquiries and meetings (cited by 60 percent), and goodwill and asset impairment considerations (cited by 45 percent).

  • Public company respondents believed that the pandemic-driven shift to virtual auditing will continue. Eighty-seven percent of company respondents expect there to be an increase in virtual meetings with external auditors, and 83 percent anticipate a reduction in audit team time spent on site.

  • Eighty-two percent of public company respondents stated that their auditors have deployed data analytics or emerging technologies as part of the audit process.

  • Fifty-six percent of auditor respondents stated that audit effort could be reduced without impacting audit quality if management’s ICFR team or the internal audit function provided additional assistance. Forty-six percent of auditors cited “additional experience testing IT general controls and/or application controls” when asked what would be most beneficial to increasing external audit reliance on internal audit, while 24 percent cited “experience assessing internal control exceptions and/or deficiencies.”

Comment: While each company faces unique circumstance, audit committees may want to consider whether changes in their audit fee generally parallel those for similar companies, as reflected in the FERF report. If the company seems to be an outlier, the reasons should be explored. In addition, the FERF survey’s reference to the views of auditors on ways that the company’s internal control function could reduce external audit effort may be of interest to audit committees. Focusing internal audit on testing that could pay dividends in terms of reduced external auditor effort may be an effective strategy, both in terms of internal audit’s core responsibilities and in terms of controlling audit costs.

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