Rising audit fees “…a reality but not an inevitability”. Technology needs to help ease the burden of responsibility

Rebecca Watson Date published: Oct 19, 22

As individuals we’re all trying to manage the challenge of the rising cost of living. This is also true of essential public sector bodies like councils, police and fire services, who also have finite budgets that need to absorb rising inflation, interest rates and energy costs.

This month the UK’s Public Sector Audit Appointments (PSAA) warned of a further challenge that public bodies need to be prepared for, a predicted 150% increase in audit fees from 2023.

As a company that provides software solutions to regulated industries - including over 330 public sector and NHS customers and nine of the top 10 UK accounting firms – Ideagen has a unique perspective of all sides of this trilemma: balancing the cost, societal accountability expectations, and the rigour that’s needed to do a thorough audit.

“This is a real challenge for our public sector clients, who have to balance risk versus cost to the public purse,” says David Moore, Chief Product Officer at Ideagen.

“This warning from the PSAA is stark reminder of the realities these organisations 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 increases the 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 greater audit complexity and risk. Higher risk audits require more auditor resources to reduce audit risk to an acceptable level.”

As taxpayers, we demand rigour to ensure organisations have the integrity we expect. But in these challenging financial times, when everyone is trying to do more with less, is there a role that technology play to ease the equitable burdens of responsibility and increase efficiency?

“While rising costs are a reality, that doesn’t necessarily mean they should be an inevitability,” said David.

“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 incorporated in regulatory software, can do more of the heavy lifting for internal and external audit teams.”

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.

This was recognised by the PSAA, who procure audit services for 99% of all eligible local bodies. They cited challenges faced by the audit industry in the intervening period, along with the ‘distinctive difficulties’ in local audit, as the cause for what they describe as “…a less competitive market”. And that shouldn’t be a surprise after all, if you think about building a house with complicated architecture, it is always going to be more costly than building a standard house.

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."

For more information on how Ideagen is helping audit and risk visit our solutions pages