Report: Audit fees feel short-term accounting pain, plan long-term automation gain

Senior-level financial executives saw an increase in audit fees in the latest reporting year as the result of new accounting standards, particularly for revenue and leases, according to the 2018 Audit Fee Survey report by the Financial Education & Research Foundation (FERF).

In addition to the new accounting rules, executives that took part in the survey cited higher merger and acquisition activity and Public Company Accounting Oversight Board (PCAOB) inspection reports and staff alerts pushing audits costs higher.

“We’re seeing a large increase in documentation requests, such as documenting the process management goes through to come to its conclusions,” says one controller in an interview included in the report. “That increases the time it takes to complete and document [an] audit.”

According to the survey, public companies are reporting a median increase of 2.5% for their 2017 audits. Similarly, private companies reported a median increase of 3.2%, and nonprofit organizations reported flat fees.

The increases reported in the survey, sponsored by Workiva, compare with a median increase of 1.3% for public companies last year. Reported increases were 3.7% for private companies and 1.6% for nonprofits.

According to an analysis of 6,340 public companies by financial analysis firm idaciti, SEC registrants reported a median fee increase of 5.7% for their 2017 audits.

Despite these potential challenges for preparers, auditors say the marketplace is stable and competitive, with clients demanding greater efficiency during the audit process.

Automation is continuing its expansion in the core operations of finance teams interested in increasing their effectiveness and efficiency. Primarily among larger organizations, tools such as robotic process automation (RPA) and artificial intelligence (AI) are starting to help finance teams increase efficiency and enhance their internal controls.

Companies are automating basic functions such as balance sheet reconciliation as well as moving data automatically between systems instead of pasting data manually into spreadsheets. Other functions suitable to artificial intelligence include identifying patterns that would otherwise be invisible to a human, or compiling data from several sources as part of the financial close.

One of the key ways respondents say they’re mitigating audit fee increases is devoting more time and effort to audit planning. This can mean sitting down with the audit team immediately after a prior-year audit closes to discuss what worked and what could have gone better, as well as reviewing scoping documents for the coming year closely to understand the factors that can drive fees or having more information ready before the auditors show up to begin their field work.

Another common strategy several respondents cite is expanding internal staffs or enlisting other resources to take on work they formerly relied on their auditors to perform.

Respondents also cite the importance of meeting regularly with auditors, usually at least quarterly, to update them on planned or recent organizational developments, discuss potential issues, and resolve any questions outside of the year-end rush. Discussing each party’s contributions to the process and understanding each other’s expectations can reduce confusion and the amount of work that needs to be reverified or repeated.