Audit fees poised to rise further after 6.4% hike in latest cycle, report says

Dive Brief:

• Overall average audit fees for public companies rose 6.4% in 2023 to $3.01 million from a year earlier, according to a Financial Education & Research Foundation report based on both a survey and data from Securities and Exchange Commission filings of more than 4,000 organizations.  
• Changes to internal control over financial reporting was the most frequently cited driver of increased audit team efforts related to 2023 audits compared to 2022, followed by acquisitions and divestitures, and turnover of key audit teams members or company staff, according to findings from a survey of 173 respondents from both public and private firms. 
• Going forward, further fee increases are expected to stem from new regulatory changes on the horizon such as the Financial Accounting Standards Board’s new income statement expense rules, according to Andrej Suskavcevic, president and CEO of the Financial Executives International and Financial Education & Research Foundation. “The FASB’s Disaggregation of Income Statement Expenses standard represents a potentially large burden to implement and audit,” he said in a statement included in the release. “In addition, audit firms will need to implement and comply with several new [Public Company Accounting Oversight Board] standards in the next several years.” 

Dive Insight:

The continued rise of audit fees comes amid other inflationary pressures, leaving some companies and their audit committees considering whether to begin submitting requests for proposals to auditors, the report stated. However, the report noted that one respondent said it can be risky to focus solely on price. It also quoted an unnamed CFO from a large private company who is taking the fee hikes in stride for now. 

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“We haven’t seen a double-digit slap in the face, so to speak. If we had seen something like that, we would’ve come back and gone, ‘All right, let’s see the hours.’ We’re asking, ‘Why are you doing that?’ ‘What’s this?’ ‘Why did it take you 20 hours to do this when I can get a staff accountant here to do it in eight?’” the finance chief said, according to the report. 

Looking ahead, the report said the upcoming implementation of new accounting regulations — which are expected to require more work and increase fees — follows what has been a 36-month period that has been “comparatively calm” for finance teams where they haven’t had to wrestle with “transformative changes” from the FASB or PCAOB. 

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That status quo appears to be about to end. When the FASB published new income statement expense rules last month, its members acknowledged that the additional information it sought to provide investors in financial reports would come at an added cost to the companies.

Compliance with the standards update “isn’t going to be cheap” for many firms but the FASB has taken steps to reduce the cost to preparers, board member Fred Cannon previously told CFO Dive. The rules will be effective for annual reporting periods beginning after Dec. 15, 2026 and for interim or quarterly periods beginning after Dec. 15, 2027.