Average audit fees increased by 4.6% from 2021 to 2022, and more auditors are using data analytics in their audits, according to a new report.
The
The report is based on responses from 54 financial executives at public companies and an additional survey of 116 audit engagement partners. The report also examines audit fees as reported by nearly 7,060 SEC filers.
Nearly 80% of audit partners surveyed indicated they used data analytics and/or other emerging technologies as part of their most recent audit in 2022, a 5% increase over the previous year. Nearly two-thirds (64%) of preparer respondents whose auditor employed emerging technologies felt their use resulted in improved audit quality, compared to the 49% who expressed that view in the previous annual survey.
Auditors and preparers are starting to discuss AI adoption plans, with 36% of preparer respondents indicating they intend to incorporate the use of AI into their financial reporting process within the next five years
Nearly half (47%) of member company respondents also indicated an increase in effort to support the external audit while 51% reported no change year over year. Nearly one-fourth (21%) saw acquisitions as the main driver of the increase in management's effort to support the external audit, which was consistent with 2021 and 2020. Other reasons cited were changes to internal controls over financial reporting, followed by divestitures.
Communication appeared to be better after COVID-induced remote work environments and even improved the quality of the audit, with 81% of public companies indicating they were pleased with their audit.
Many companies and their auditors are continuing to increase their level of in-person engagement. Over 55% of audit partner respondents indicated they expect that their audit team will spend more than 50% of their time together on-site at the client or at the firm office during peak times, compared to less than 25% of audit partners who indicated they had this expectation in the prior year survey.
In the current year, 43% of preparer respondents said moving forward, they anticipate their finance and accounting teams will spend 50% or more of their time on-site supporting the financial statement audit during peak times, compared to less than 15% who said so in the prior year. Nearly two-thirds (65%) of audit partner respondents in this year's survey indicated their expectations regarding the amount of time their team will spend together in-person are aligned with those of their engagement team.
Sustainability reporting appears to be catching on, with 70% of preparer respondents indicating they disclosed climate-related risks that were considered in the preparation of their most recently filed annual financial statement, a slight increase compared to the prior year. An 80% majority of respondents cited data gathering and aggregation of climate-related information as the most significant impact on a client related to the SEC's proposed climate-related disclosures rule. Nearly all (92%) of the S&P 500 companies polled mentioned climate-related risks in Item 1A (Risk Factors) of their most recent Forms 10-K. Audit fee information from SEC filings was provided by Idaciti, and the survey was sponsored by the Center for Audit Quality.
"This is perhaps one of the most important periods for the future of financial reporting," said FEI and FERF president and CEO Andrej Suskavcevic in a statement Tuesday. "Over the past few years, we experienced many transformative events in the profession, such as accounting rules (ASC 606, 842, CECL), corporate digital transformation, and the turbulence caused by COVID-related impacts. As we look forward, there are numerous changes on the horizon that auditors and preparers will need to traverse including SEC's rules for climate and cybersecurity and transformative technologies. Our members and their auditors will need to use the knowledge gathered over the past years and apply lessons learned to successfully navigate what's ahead."
