Average audit fees continued to grow in recent years, increasing nearly 4% from 2019 to 2020 from $2.43 million to $2.52 million, according to a new survey.
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The Audit Fee Study examined different factors affecting financial reporting and the external audit, including public company preparer opportunities to reduce audit effort, the impact of COVID-19, the value derived from outside audits, auditor insights, and the issues driving audit fee increases.
According to the survey, 28% of all respondents cited acquisitions as the main driver behind such trends. Another factor cited by 23% of all respondents was the impact of 2020’s economic uncertainty on audit scope, followed by implementation of the Financial Accounting Standards Board’s current expected credit loss (CECL) standard, divestitures, and changes in internal controls over financial reporting (ICFR) not related to COVID-19.
As for just the audit engagement partners surveyed, 57% indicated the scope of their most recently completed integrated audit engagement had increased from 2019-2020. Economic uncertainties stemming from the COVID-19 pandemic were cited as the main driver behind increases in audit scope and efforts. Other factors included non-COVID-related ICFR changes, acquisitions, the Public Company Accounting Oversight Board’s requirements for disclosing critical audit matters, and the transition to a virtual audit as a result of the pandemic.
In addition, 61% of the respondents said their auditor’s use of data analytics and other emerging technologies improved the quality of their outside audit.
The pandemic greatly affected the 2020 audit cycle. The study found the 2020 audit cycle was unprecedented for the financial reporting ecosystem, entities, and their auditors, especially when it came to determining how to successfully navigate the challenges to continue to provide high quality financial reporting and high-quality audits to the capital markets. Moving forward, three main factors that may impact the audit fee marketplace include future potential regulation, demand for audit services and professionals, and cybersecurity.
ESG also continues to emerge as an area of focus for finance professionals and auditors as 40% of respondents said they disclosed climate-related risks that were considered during the preparation of their 2020 financial statements.
“The ongoing COVID-19 pandemic continues to pose challenges for auditors and preparers, and as such, instilling trust and confidence in financial reporting and the related internal controls over financial reporting was more important than ever this year,” said Andrej Suskavcevic, president and CEO of Financial Executives International and Financial Education & Research Foundation, in a statement Tuesday. “The shift to virtual work environments, enhanced communication, and leveraging technological capabilities were critical components of solidifying that trust and essential to the continuation of ensuring the timely delivery of high-quality reporting.”
FEI also began holding its annual Current Financial Reporting Insights conference online Tuesday. “As finance professionals, we are poised to not just support, but to lead at a time when changes are constant,” said Sue Taylor, chief accounting officer at Meta, the newly renamed parent company for Facebook, as she introduced the conference. “Change is not very easy, and finance leaders face unique challenges in adapting to shifting priorities.”
Taylor also interviewed Cathy Engelbert, the former CEO of Deloitte who is now commissioner of the Women’s National Basketball Association. “I probably should give more credit to being in accounting and financial reporting for over three decades,” said Engelbert, discussing her career. “You don’t realize how much you’re exposed to until you’re on the outside, how many emerging issues, whether it’s sustainability and climate change, workforce issues, supply chain, employee benefits, M&A, digital technology. I can’t tell you how much those have come in handy, believe it or not, in my new sports life. Even though you think you’re doing corporate financial reporting or processes or internal controls or auditing, you’re learning so much more about how to transform businesses, and that’s what I brought to the WNBA.”
