What Decreasing Audit Fees Mean to You

If you are a staff auditor, you will likely feel the pinch of tightening audit fees at your firm, whether or not you're aware of the cause. In the April 2010 issue of CFO Magazine, an article titled Auditing Your Auditor notes that audit fees have been dropping across the board since 2007. This is not so much a product of a weak economy, as it is the result of the industry returning to normalcy after a series of dramatic events since 2000. Given the scandals of the early 2000's, along with the passage of Sarbanes-Oxley (SOX) in 2002, auditors dumped risky clients, thereby decreasing the supply of auditors, while the complexities of SOX were blamed for significant fee increases. The Big Four in particular were able to command premium prices because they had the scale and breadth of expertise to audit large public companies, for whom the SOX burden was heaviest.

Now that companies of all sizes are scrutinizing their budgets amidst a tough recession, many CFOs are taking a second look at the audit fees they have been paying. In many cases companies are changing auditors after decades of loyalty to the same firm. To give you an idea of the pressure auditors are currently under to compete for business, CFO Magazine notes that "in 2004, more than a third of auditor changes were the result of audit firms walking away from clients. Last year, 82% of auditor changes were because companies fired their auditors."

So what do dropping audit fees and higher audit firm turnover mean to you as an audit staff person? For starters, you'll be putting in more hours since your firm may hire fewer staff or simply assign fewer staff to each engagement in the wake of decreasing fee revenue. You are also likely to see more emphasis put on engagement budgets by partners, managers, and seniors. You may be reporting on a daily or weekly basis, the hours you incur on an assignment, or be given a strict timeline within which you should complete your assigned responsibilities.

Companies are also demanding greater value for their audit fees, so you might just see a more hands-on approach from your managers and partners. They may be out in the field frequently to reassure their clients that the audit is well supervised and receiving their fullest attention.

A recurring theme among clients is also the increased use of internal audit in conducting an audit. Rather than pay a high hourly rate to independent auditors for organizing audit documentation or performing control tests, many companies are relying on their internal auditors to assist when possible. Thus, staff auditors might find themselves meeting more frequently with internal audit, including them in their audit planning and relying on them to coordinate the collection of audit documentation.

Lastly, an overall decrease in audit fees for any accounting firm probably means that indulgent annual training meetings where associates from across the country spend a week at a luxurious hotel and convention center are put on hold. You might find a more conservative regional training session in rented office space more commonplace. Some firms are even forgoing annual holiday parties and employee give aways, or smaller bonuses. If your firm is being pressured by clients and competition to lower audit fees, you will be impacted sooner or later, regardless of your level within the firm.

For more about the current trend in audit fees, visit CFO Magazine at http://www.cfo.com/article.cfm/14485723/1/c_14485781?f=related.