Rising audit fees “…a reality but not an inevitability”

Oct 10, 22

Ideagen, who provide software solutions to regulated industries and nine of the top 10 UK accounting firms, say rising audit fees are “…a reality but not an inevitability.”

On the back of recent warnings from the UK’s Public Sector Audit Appointments (PSAA), that public bodies face a 150% increase in audit fees from 2023, and Ideagen’s own research that shows a 3.3% increase in audit fees from 2020 to 2021, concern has been raised about the enhanced pressure this places on increasingly stretched finances.

Auditors play a fundamental role in protecting the reliability and integrity of financial reporting and there has been much scrutiny of this globally with the increasing regulation introduced designed to protect auditor independence.

David Moore, Chief Product Officer at audit software firm Ideagen who have over 330 public sector and NHS customers, said: “This is a real challenge for our public sector clients, who have to balance risk versus cost to the public purse. This warning from the PSAA is stark reminder of the realities these companies face in ensuring they have a robust audit in place to evidence public funds are being used appropriately, but doing so in a time of growing financial pressure.

“The essential need for scrutiny, to provide taxpayers with confidence, creates a more complex audit landscape which requires more resource and thus increased cost. It’s not isolated to the UK. Our latest analysis of over 7,000 US listed corporations has shown a 3.3% increase in audit fees from 2020 to 2021 reflecting audit complexity and risk. Higher risk audits require more auditor resources to reduce audit risk to an acceptable level.

“We need the level of rigour to trust organisations have the integrity we expect, but while rising costs are a reality, that doesn’t necessarily mean they should be an inevitability. What we need to do, as software providers, is work with both our local authority and auditor customers to demonstrate how technological developments such as AI and big data, can do more of the heavy lifting for internal and external audit teams.”

Earlier this week, the PSAA, who procure audit services for 99% of all eligible local bodies, such as local authorities, police and fire services, revealed that the bid prices they received in their latest procurement period reflected a significant increase compared to their previous procurement in 2017. They cited challenges faced by the audit industry in the intervening period, along with the ‘distinctive difficulties’ in local audit, as the cause for a less competitive market.

They’ve advised bodies to plan for a 150% increase in their audit budgets for 2023/24.

Ideagen’s Audit Analytics business, which collects financial and accounting data to support the financial industry and academics with their research, risk assessments and decision making, published their latest report this week tracking audit fees over the last 20 years.

This revealed auditor fees, both audit and non-audit, reached $18.9bn in FY21, a rise of 3.3% on the previous year, and the largest jump since 2017.

And while this is two-and-a-half times the cost of the Tokyo 2020 Olympic games, it isn’t necessarily a bad thing, as Research Analytics Manager for Ideagen, Nicole Hallas, explains:

“Audit fees are an indicator of audit complexity and risk. Higher risk audits require more auditor resources to reduce audit risk to an acceptable level. Analysing fees by industry, company size, and location illustrates the level of risk and auditor effort across various sectors of publicly listed companies."