Audit Fee Survey May 2009
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[email protected] Audit Fee Survey May 2009
William M. Sinnett Director of Research Financial Executives Research Foundation
(~
ferf
financial executives
research foundation the source for financial solutions 200 Campus Drive P.O. Box 674 Florham Park, New Jersey 07932-0674 www.ferf.org an affiliate of
~ financial executives international
Audit Fee Survey May 2009 TABLE OF CONTENTS Executive Summary Public Companies Company Size Audit Fees for 2008 Primary Audit Firm Audit Negotiations Auditor Relations Structure of the Audit Team Tax and Other Professional Services Private Companies Company Size Audit Fees for 2008 Primary Audit Firm Audit Negotiations Auditor Relations Structure of the Audit Team Tax and Other Professional Services
Exhibit A: 2008 Total Audit Fees by Filing Status Exhibit B: 2008 Total Audit Fees by Sales Revenue Exhibit C: Audit Fees: Centralized vs. Decentralized Operations Exhibit D: Primary Audit Firm Exhibit E: Audit Negotiations Exhibit F: Auditor Relations Exhibit G: Structure of Audit Team Exhibit H: Tax and Other Professional Services Exhibit I: Cost of Corporate Tax Services by Sales Revenue About the Author and Financial Executives Research Foundation, Inc.
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Audit Fee Survey May 2009 Executive Summary How do your company's audit fees compare with those of other companies? This research report provides the results of its annual survey of audit fees. These results summarize the responses of executives from 110 United States publicly-held companies, 245 U.S. privatelyheld companies, and nine foreign companies. In prior years, Financial Executives Research Foundation (FERF) had surveyed companies on their costs of compliance with Sarbanes-Oxley Section 404. However, after the U.S. Public Company Accounting Oversight Board (PCAOB) released Auditing Standard No.5, "An Audit of Internal Control over Financial Reporting that is Integrated with an Audit of Financial Statements" in June 2007, many companies reported that their auditors no longer segregated fees for the internal control auditor attestation from the traditional statutory financial statement audit fees. Therefore, this year's survey focuses on the total fee paid to the external auditor, inclusive of Section 404 attestation fees, if applicable. Total audit fees paid by the 110 publicly-held companies responding to the survey for fiscal year 2008 averaged $3.7 million. According to this year's respondents, this average represented an increase of 2.2% over the total audit fees that they paid for the prior fiscal year audit. In comparison, the total audit fees paid by the 245 privately-held companies responding to the survey averaged $219,500, a 3.7% increase over what they paid the prior year. Companies with centralized operations, both public and private, paid less on average than companies with decentralized operations for their annual financial statement audits. Here are some of the other key survey results: • Public companies responding to the survey were, on average, larger than the private companies responding in terms of annual sales revenues. They also comprised more legal entities (80 on average) than the private companies responding (5 on average). • The total number of audit hours required for public company audits averaged 9,881. The total required for private companies averaged 1,903. • The average blended audit fee rate per hour for public companies was $216, compared to an average blended rate of $179 for private companies. • A greater percentage of public company respondents (86.4%) used Big 4 audit firms than did private company respondents (38.0%). • 15 of the 245 private companies responding to the survey plan to switch auditors, compared to only two of the 110 public company respondents. When asked why they planned to switch auditors, "service issues" were mentioned as a key reason by 10 of the 15 private company respondents.
Public Companies
Company Size As measured by their market capitalization, the size of the public companies responding to this year's Audit Fee Survey for fiscal year 2008 tended to be large, with 28 (25.4%) of the 110 responding companies categorized by the U.S. Securities and Exchange Commission (SEC) as "accelerated filers: meaning that they have market capitalizations between $75 and $699 million, and 56 (50.9%) categorized as "large accelerated filers," with market capitalizations of more than $700 million. Many of these companies have been required to comply with SarbanesOxley Section 404 for up to five fiscal years. (See Exhibit A.) The remaining 26 respondi ng companies were U.S. domestic unon-accelerated fil ers,~ publiclyheld companies with total market capitalizations of less than $75 million. In June, 2008, the SEC announced that it had "approved a one-year extension of the compliance date for smaller public companies to meet the Section 404 (b) auditor attestation requirement of the Sarbanes-Oxley Act. ~ "With the extension, smaller companies will now be required to provide the attestation reports in their annual reports for fiscal years ending on or after December 15, 2009." (SEC press release 2008-116. dated June 20. 2008) A breakout of the responding accelerated filer companies by annual sales revenue is illustrated below and provided in Exhibit B. Responding companies were asked to indicate their annual sales revenue within one of a series of revenue ranges. For example, of the 84 accelerated filers, 26, or 31.0%, had annual revenues between $1 and $4.9 billion, and 10, or 11.9% had annual revenues of over $25 billion. Public Company Size 30
25 20 15 10 5
o
~
l-
Iless than $25 ninon
$100 to $500 to $1 to $4.9 $25 to $99 blion mltion $499 nilion $999 niIion
$5 to $14.9 $15 to bilion $24.9 bIion
MJre than $25 bilion
Annual Revenues
Respondents were also asked for the number of legal entities that their companies comprised. The numbers of legal entities appear to be directly proportional to the size of the company, both by market capitalization filing status (Exhibit A) and sales revenue (Exhibi t B). The 19 public companies with annual sales less than $25 million responding to the survey had an average of 3 legal entities, while the 10 respondents with annual sales greater than $25 billion had an average of 485 legal entities.
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Public Companies Audit Fees for 2008 Respondents to the survey were asked for "the total fee paid to your external auditor for the annual financial statement audit, including the Section 404 attestation." The results are shown in Exhibits A and S. Total audit fees paid by the 110 public company respondents averaged $3.7 million, and again appear to be directly proportional to the size of the company, as measured by both market capitalization (Exhibit A) and sales revenue (Exhibit S). For example, total audit fees for the 56 large U.S. accelerated filers (as defined by the SEC, with market capitalization over $700 million) responding to the survey averaged $5.7 million. These respondents also indicated that this average was 4.2% greater than the total audit fees that they paid their auditor the prior year. This average of $5.7 million was perhaps skewed to the high side this year due to the total audit fees reported by the 10 respondents from companies with more than $25 billion in annual revenues (Exhibit S). These reported audit fees averaged $17.8 million, and ranged from a low of $7 million to a high of $41.5 million, which was paid by a large financial services firm. It is interesting to note that the average audit fees paid by the 26 non-accelerated filers, $342,000, was reported to be 2.2% less than those fees paid in the prior year. Respondents were also asked for the total number of audit hours, if known, and also the blended audit fee rate per hour, again if known. A blended audit fee would approximate the weighted average fee paid per hour for the different members of the audit team. The total number of audit hours averaged 9,881 for all public companies, and was directly proportional to both the size of the company and to the number of legal entities comprising the company. (See Exhibit S.) The blended audit fee rate per hour averaged $216 for all public companies. The highest rate mentioned by public company respondents in this survey was $285, the lowest rate mentioned was $145, and the median rate was $221. Exhibit S shows the average blended audit fee rate per hour, and the respective high, low and median rates by revenue category. Survey respondents were asked whether their company had centralized or decentralized operations. In compiling the survey responses, responses to the audit fee question were segregated by centralized and decentralized operations. Of the 110 executives from public companies responding to the survey, 79 selected either centralized or decentralized operations, with 47 (59.5% of 79) noting centralized operations, and 32 (40.5% of 79) noting decentralized operations. On average, public companies with centralized operations paid $3.2 million for their annual financial statement audits, while those with decentralized operations paid $4.5 million. (See Exhibit C.)
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Public Companies
Primary Audit Firm Survey respondents were asked for the name of their primary audit firm. The responses are shown below and summarized in Exhibit D. Most of the respondents from public companies (95, or 86.4% of 110) reported that they used one of the Big 4 accounting fi rms as their prim ary auditor. Representation was fairly even ly split among respondents, though Deloitte was mentioned most often (31).
Primary Audit Firm
C Oeloitte - 31 • Ern st & Young = 22
o KPMG=20 OPwC=22 • Grant Thornton = 5 C BOO Seidman = 3 • Other = 7
After the Big 4, Grant Thornton was mentioned by five respondents and BDO Seidman was mentioned three times. Seven publi c company respondents mentioned regional or local auditing firms, including: • Clark Nuber • Hoga n Taylor • Katz Sa pier & Miller • Schneider Downs & Co. • Singer Lewak • UHYand • Whitley Penn
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Public Companies Audit Negotiations Respondents were asked how their statutory audits were negotiated. The responses are shown in Exhibit E. A clear majority of the public company respondents (60.9%) said that statutory audits were negotiated at a local level. Only 17.3% responded that audit negotiations were centralized at corporate, and 21.8% did not provide a response. Those who responded that statutory audits are negotiated at a local level were then asked what role corporate had. Less than half (44.9%) responded that corporate had a limited role, just reviewing fees for reasonableness, 36.7% said that corporate had a moderate role, approving fees and reviewing engagement letters, and 18.4% said that corporate just compiled data for reporting. Respondents were then asked about their expectations for next year's integrated audit fees. Only about a fifth of the respondents (19.4%) expect their audit fees to increase next year, while the rest (80.6%) expect audit fees to hold relatively flat or even decrease. About a third (32.7%) expected a decrease of between 2% and 10%. These expectations may be explained by the responses from the public companies when asked about what steps they have taken to reduce audit costs. In this current economy, as companies focus on expense reduction, audit costs are no exception. Respondents to the survey were given four different tactics for reducing audit costs, and were asked to check all that they had used. The responses are shown in Exhibit E. About two-thirds of the respondents (68.2%) said that they have negotiated hard with their current audit firm. Over half (54.5%) said that they have taken on more of the work internally, less than one in ten respondents (9.1 %) said that they have switched to a regional or local firm, and one in twelve (8.2%) have put the audit out for a competitive bid.
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Public Companies
Auditor Relations How long have companies stayed with their current auditors? Interestingly, according to the responses to the survey, auditor tenure appears to be somewhat proportional to the size of the company by annual revenues. Respondents were asked "How long have you used your current auditor?M The average number of years indicated by respondents , categorized by size of company in annual revenues is shown below. The weighted average number of years indicated by all public company respondents was 15.9 years.
Auditor Tenure 40 35 30
-
rr-
25
§ 20
>- 15 10 5
o
-n-
ro
I
I
Less Ihan $25 10 $99 $25 million million
III-
--
n-
--
$100 to $499
$500 10
$1 10 $4.9
$510
$15 to
$999
billion
million
million
$14.9 billion
$24.9 billion
More than $25 billion
Annual Reve nues
Respondents were then asked "How often do you put the audit engagement out for bid?" The results are shown in Exhibit F. A clear majority of the respondents (82.6%) only put the audit engagement out for bid when they decide to switch auditors, though 10.8% do put the engagement out for bid every 4 to 7 years. Only two public company respondents said that they plan to switch auditors. When asked why they planned to switch auditors, the two reasons mentioned were: • Cost, and the level of service is poor • No longer listed on NASDAQ Respondents were also asked, MOO you use firms other than your primary auditor for statutory audits?M The majority of respondents (55.5%) said "no, we only use our primary financial statement auditor.M
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Public Companies Structure of the Audit Team Respondents were asked, "In relation to your integrated audit, from a global coordination standpoint, how is your audit engagement team structured?" The public company responses were evenly split between: • Centralized - All work performed by one engagement team (48.4%) and • Decentralized - Lead engagement team responsible for audit for consolidated financials. Local engagement teams perform work at other locations (51.6%) Respondents were then asked, "In relation to your statutory audits, from a global coordination standpoint, how is your audit engagement team structured?" The majority of the public companies responded "Decentralized": • Decentralized (59.5%) • Centralized (23.0%) • Hybrid (17.5%) - Local engagement teams perform audits of other locations and statutory filings. Lead engagement team is involved in statutory audits and filings. These responses are summarized in Exhibit G.
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Public Companies Tax and Other Professional Services Respondents were asked , "Do you use other accounting firms that are not your primary auditor for tax or other professional services?~ Almost two·thirds (62.7%) said ~ Yes . ·
Those who responded "Yes· were then asked, "What types of tax services do you use?- The survey provided three options, and respondents were asked to check all that they used. Of the two-thirds who had responded "Yes" to the previous question, the most popular service was "assistance with tax return preparation.~ The responses are summarized below and in
Exhibit H.
Tax Services Used 70.0%
I--;:::::::::;---------~~~
60.0%
-f-- -I
...5ic
50.0%
+-- -1
g.
40.0%
+-- -1
J!l
o
-~ 0
________-I
30.0%
c
~
~ ~ 0.
20.0% 10.0% O . O% +-----~----~----~-----L-------L----_r----L-------L---~
Tax Preparation
Tax Planning
Transfer Pricing
Assistance with
Respondents were then asked, ~What is the total cost of your corporate tax services?n The average of the 66 public company responses was $764,300. Again, the actual responses were directly proportional to the size of the company by sa les revenue, with the average of the 12 responses from companies with revenue less than $25 million being $31 ,600, and the average of the 5 responses from companies with revenue greater than $25 billion being $2.3 million. The responses are shown in Exhibit I.
8
Private Companies
Company Size As measured by annual revenues, the size of the private companies responding to this year's Audit Fee Survey for fiscal year 2008 were smaller than the public companies responding. Most companies (204, or 83.3% of 245) had less than $500 million in annual revenues. A breakout of the responding private companies by annual sa les revenue is shown below and provided in Exhibit 8. Responding companies were asked to indicate their annual sales revenue within one of a series of revenue ranges. For example, 36 responding companies had annual revenues less than $25 million, and only one responding company had annual revenues between $5 and $15 billion.
Private Company Size 100 90 J!l c 80 70 c 0 C60 ~ 50 0 40
•
"
~ ~
•
30 f---- r--
z
20 f---10 f---0
.c E
,
,---, I
I
Less Ihan $25
$2510 $99
$100 to $499
$50010 $999
$1 to $4.9
$5 to $14.9
million
million
million
million
billion
billion
Annual Revenues
Respondents were also asked for their number of legal entities. As was the case with the responding public companies, these numbers of legal entities appear to be directly proportional to the size of the company by sales revenue (Exhibit 8). The 36 private companies with annual sales less than $25 million responding to the survey had an average of 2 legal entities, while the one respondent with annua l sales greater than $5 billion had 50 legal entities.
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Private Companies Audit Fees for 2008 Respondents to the survey were asked for "the total fee paid to your external auditor for the annual financial statement audit." The results are shown in Exhibit B. Total audit fees paid by the 245 private company respondents averaged $219,500, and again appear to be directly proportional to the size of the company, as measured by sales revenue (Exhibit B). According to this year's respondents, this average audit fee represents an average 3.7% increase over the total fees that they paid for their prior year's audit. For example, total audit fees for the 36 private companies with annual sales less than $25 million responding to the survey averaged $47,800, while the audit fees for the one respondent with annual sales greater than $5 billion was $950,000. Average increases in audit fees this year ranged from 3.1 % to 5.3%. Respondents were also asked for the total number of audit hours, if known, and also the blended audit fee rate per hour, again if known. The total number of audit hours averaged 1,903 for all private companies, and was somewhat proportional to both the size of the company and to the number of legal entities comprising the company. The blended audit fee rate per hour averaged $179 for all private companies. The highest rate mentioned by private company respondents in this survey was $278, the lowest rate mentioned was $100, and the median rate was $165. Exhibit B shows the average blended audit fee rate per hour, and the respective high, low and median rates by revenue category. Survey respondents were asked whether their company had centralized or decentralized operations. In compiling the survey responses, responses to the audit fee question were segregated by centralized and decentralized operations. Of the 245 executives from private companies responding to the survey, 127 selected either centralized or decentralized operations, with 111 (87.4% of 127) noting centralized operations, and only 16 (12.6% of 127) noting decentralized operations. On average, private companies with centralized operations paid about $180,000 for their annual financial statement audits, while those with decentralized operations paid over $244,000. (See Exhibit C.)
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Private Companies
Primary Audit Firm Survey respondents were asked for the name of their primary audit firm. The responses are shown in Exhibit D. Less than half of the respondents from private companies (93, or 38.0% of 245) reported that they used one of the Big 4 accounting firms as their primary auditor. Representation was fairly evenly split, though Ernst & Young was mentioned most often (34). Pr imary Audit Firm
o Deloitte - 22 • Ernst & Young = 34
o KPMG = 2 1 oPwC=16 • BOO Seidman = 11 o Grant Thornton = 20 • McGladrey& Pullen = 20
o Regional = 60 • Local = 41
As ca n be seen from the chart above, 101 private companies (41 .1% of 245) use regional or local audit firms. Respondents using either a regional or local audit firm were invited to name the firm . Multiple mentions incl uded: • Moss Adams LLP (6) (Western United States) • BKD LLP (4) (Mid West United States) • Macias Gini & O'Connell LLP (3) (California) • Meyer Hoffman McCann (2) (National) • Parente Randolph (2) (Mid Atlantic and Texas) • Rubin Brown (2) (Kansas and Missouri) • Spilman, Hills & Heidebrink, Ltd. (2) (Ohio) • Wipfli Inc. (2) (U.S. and India)
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Private Companies Audit Negotiations Respondents were asked how their statutory audits were negotiated. The responses are shown in Exhibit E. The most common response (46.9%) from private companies was that statutory audits were negotiated at a local level. Only 19.2% responded that audit negotiations were centralized at corporate, and 33.5% did not provide a response. Those who responded that statutory audits are negotiated at a local level were then asked what role did corporate have. Responses were fairly evenly split between: • None - Just compiles data for reporting (34.5%) • Limited - Only reviews fees for reasonableness (36.4%) • Moderate - Approves fees and reviews engagement letters (29.1 %) Respondents were then asked about their expectations for next year's audit fees. Unlike their public company counterparts, about half (50.4%) of the private company respondents expect to see audit fee increases of 2% to 10% next year, while 40.4% expect audit fees to hold relatively flat. Nevertheless, their responses to the question "What steps have you taken to reduce audit costs?" were similar to their public company counterparts. Respondents were given four different tactics for reducing audit costs, and were asked to check all that they used. More than half of the respondents (55.9%) said that they have negotiated hard with their current audit firm, and 51.4% said that they have taken on more of the work internally. However, private companies appear to have been more active in seeking a new audit firm than their public company counterparts. Over one fifth (22.9%) of the private company respondents put their audit out for competitive bids, and almost as many (20.4%) said that they have switched to a regional or local firm.
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Private Companies
Auditor Relations How long have companies stayed with their current audltors? As with the public companies responding to the survey, auditor tenure for private companies appears to be somewhat proportional to the size of the company by annual revenues . Respondents were asked -How long have you used your current auditor?Aud itor Te nure 18.0 16.0 14.0 12.0
,•
•• >-
10.0
B.O 6.0 4.0 f 2.0 I0.0 less than $25 million
,--
r-
-
$25 to $99 $100 to $499 $500 to $999 million million million
$1 to $4 .9 billion
$5 to $14.9 billion
Annual Revenues
Respondents were then asked ~ H ow often do you put the audit engagement out for bid?WThe resu lts are shown in Exhibit F. As with their public company counterparts, a majority of the respondents (56.7%) only put the audit engagement out for bid when they decide to switch auditors, though 24.5% do put the engagement out for bid every 4 to 7 years. A total of 15 private company respondents said that they plan to switch auditors. Surprisingly, when asked why, 10 executives responded with some version of ·service issues. - Only four cost" as an issue. The other reason given was Maud it partner retiring : responses included M Respondents were also asked, MOO you use firms other than your primary auditor for statutory auditsT As did the public company respondents, the majority of private company respondents (61 .2%) said uno, we only use our primary financial statement auditor.·
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Private Companies Structure of the Audit Team Respondents were asked, "In relation to your integrated audit, from a global coordination standpoint, how is your audit engagement team structured?" Unlike their public company counterparts, over two-thirds (78.3%) of the executives responded "Centralized - All work performed by one engagement team." Only 21.7% responded "Decentralized - Lead engagement team responsible for audit for consolidated financials. Local engagement teams perform work at other locations." Respondents were then asked, "In relation to your statutory audits, from a global coordination standpoint, how is your audit engagement team structured?" The majority of the private companies responded "Centralized": • Centralized (56.6%) • Decentralized (30.1 %) • Hybrid (13.3%) - Local engagement teams perform audits of other locations and statutory filings. Lead engagement team is involved in statutory audits and filings. These responses are summarized in Exhibit G.
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Private Companies
Tax and Other Professional Services Respondents were asked, "Do you use other accounting firms that are not your primary auditor for tax or other professional services?~ Over half (53.5%) said " Yes . ~ Those who responded "Yes" were then asked, "What types of tax services do you use?" The survey provided three options, and respondents were asked to check all that they used. Of the half that said "Yes" to the previous question, the most popular service was "assistance with tax return preparation. ~ The responses are summarized below and in Exhibit H.
Tax Services Used
:l c
~
"0
c 0
Co
w
--'" ~
0
c
~
~ ~
"-
100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%
I Tax Preparation
Tax Planning
I
Transfer Pricing
Assistance with
Respondents were then asked, "What is the total cost of your corporate tax services?" The average of the 151 private company responses was $59,400. Again, the actual responses were directly proportional to the size of the company by sales revenue, with the average of the 19 responses from companies with revenue less than $25 million being $22,500, and response from the company with revenue greater than $5 billion being $200,000. The responses are shown in Exhibit I.
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Audit Fee Survey/May 2009 Exhibit A: 2008 Total Audit Fees by Filing Status
u.s. Accelerated Filers u.s. NonTotals
Number of Responses US. Public U.S. Private Foreign Total
Accelerated Filers
110 245 9 364
$75 to $699 million
28
26
Foreign
Large Over $700 million
u.s.
NonAccelerated Filers
Private
Accelerated Filers
56 245 6
3
3
13
93
5
3
3
$342,000 -2.2%
$1,687,500 1.3%
$5,699,300 4.2%
$219,500 3.7%
$858,300 6.2%
$287,700 7.3%
Total Audit Hours (If Known)
1,613
6,284
14,478
1,903
Blended Rate/Hour High Median Low Number of Responses
$196 $232 $200 $165 6
$216 $250 $218 $145 15
$217 $285 $225 $150 32
$179 $278 $165 $100 48
Average Number of Legal Entities Total Audit Fees % Change from Prior Year
Copyright 2009 Financial Executives Research Foundation (FERF) www.ferf.org. No part may be reprinted or distributed without approval from FERF.
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$174 $174 $174 $174 1
Audit Fee Survey/May 2009 Exhibit B: 2008 Total Audit Fees by Sales Revenue Annual Sales Revenue Average of All Responses U.S. Public Number of Responses Percent of Responses Average Number of Legal Entities Total Audit Fees % Change from Prior Year
110 100.0% 80 $3,709,500 2.2%
Audit Fees as a % of Revenue
Less than $25 million
$25 to $99 million
$100 to $499 million
$500 to $999 million
$1 to $4.9 billion
$5 to $14.9 billion
6 5.5%
18 16.4%
13 11.8%
26 23.6%
15 13.6%
3 2.7%
10 9.1%
3
2
9
10
23
33
105
485
$255,800 -6.0%
$703,500 3.8%
$718,500 1.8%
$1,332,800 18.0%
$3,228,800 -2.4%
$3,417,700 0.8%
$5,900,000 11.3%
$17,848,800 1.2%
1.28%
0.28%
0.06%
0.04%
0.03%
0.01%
0.01%
0.04%
9,881
850
1,660
3.097
6,952
10,743
13,472
Blended Rate/Hour High Median Low Number of Responses
$216 $285 $221 $145 53
$200 $200 $200 $200 1
$203 $250 $200 $165 4
$210 $283 $218 $145 7
$214 $246 $210 $182 10
$229 $265 $232 $185 14
$211 $268 $233 $150 9
36 14.7%
88 35.9%
80 32.7%
24 9.8%
16 6.5%
0.4%
2
4
5
6
14
50
$47,800 3.1%
$116,200 3.2%
$191,600 4.0%
$522,100 5.3%
$675,400 4.0%
$950,000 5.0%
0.24%
0.05%
0.02%
0.02%
0.01%
0.00%
Average Number of Legal Entities Total Audit Fees % Change from Prior Year
245 100.0% 5 $219,500 3.7%
Audit Fees as a % of Revenue
More than $25 billion
19 17.3%
Total Audit Hours (If Known)
U.S. Private Number of Responses Percent of Responses
$15 to $24.9 billion
Total Audit Hours
1,903
406
711
1,049
2,253
5,746
4,150
Blended Rate/Hour High Median Low Number of Responses
$179 $278 $165 $100 48
$152 $177 $155 $112 5
$196 $265 $175 $105 12
$170 $278 $164 $100 16
$190 $235 $191 $145 5
$170 $208 $160 $150 9
$230 $230 $230 $230 1
Copyright 2009 Financial Executives Research Foundation (FERF) www.ferf.org. No part may be reprinted or distributed without approval from FERF. 17
40,500 $285 $285 $285 $285 1
$206 $228 $215 $160 7
Audit Fee Survey/May 2009 Exhibit C: Audit Fees: Centralized vs. Decentralized Operations Total
Centralized Operations
Decentralized Operations
U.S. Public
79 100.0%
47 59.5%
32 40.5%
Average Audit Fees
$3,709,500
$3,252,300
$4,557,000
Cost of Statutory Audit, if Billed Separately
$1,732,618
127 100.0%
111 87.4%
16 12.6%
Average Audit Fees
$219,500
$179,668
$244,564
Cost of Statutory Audit, if Billed Separately
$109,500
Number of Responses Percent of Responses
U.S. Private Number of Responses Percent of Responses
Copyright 2009 Financial Executives Research Foundation (FERF) www.ferf.org. No part may be reprinted or distributed without approval from FERF.
18
Audit Fee Survey/May 2009 Exhibit D: Primary Audit Firm
U.S. Public
Total
U.S. Private
Foreign
Oeloitte Ernst & Young KPMG PricewaterhouseCoopers
53 59 42 39
31 22 20 22
22 34 21 16
0 3 1 1
BOO Seidman Grant Thornton McGladrey & Pullen
14 26 20
3 5 0
11 20 20
0 1 0
Regional
67
5
60
2
Local
44
2
41
364
110
245
Totals
9
Copyright 2009 Financial Executives Research Foundation (FERF) www.ferf.org. No part may be reprinted or distributed without approval from FERF. 19
Audit Fee Survey/May 2009 Exhibit E: Audit Negotiations Total
Number of Responses
364
U.S.
U.S.
Public
Private
Foreign
110
245
9
How are statutory audits negotiated? At a local level Centralized at corporate By region N/A
60.9% 17.3% 0.0% 21.8%
46.9% 19.2% 0.4% 33.5%
33.3% 44.5% 0.0% 22.2%
If statutory audit negotiations are not centralized at corporate, what role does corporate have? None - Just compiles data for reporting Limited - Only reviews fees Moderate - Approves fees and reviews engagement
18.4% 44.9% 36.7%
34.5% 36.4% 29.1%
50.0% 50.0% 0.0%
What is your expectation for next year's audit fees? Increase more than 10% Increase 2% to 10% Hold relatively flat Decrease 2% to 10% Decrease by more than 10%
3.1% 16.3% 30.6% 32.7% 17.3%
3.1% 50.4% 40.4% 3.9% 2.2%
0.0% 33.3% 33.3% 22.2% 11.2%
What steps have you taken to reduce audit costs? (Check all that apply) Moved to a regional or local firm Taken on more of the work internally Negotiated hard with current firm Competitively bid
9.1% 54.5% 68.2% 8.2%
20.4% 51.4% 55.9% 22.9%
11.2% 11.2% 33.3% 22.2%
Copyright 2009 Financial Executives Research Foundation (FERF) www.ferf.org. No part may be reprinted or distributed without approval from FERF.
20
Audit Fee Survey/May 2009 Exhibit F: Auditor Relations Total
U.S. Public
U.S. Private
Foreign
110
245
9
16 Years
8 Years
13 Years
How often do you put the audit engagement out for bid? Every 3 years or less Every 4 to 7 years Every 8 or more years Only when we decide to switch auditors
3.3% 10.8% 3.3% 82.6%
12.4% 24.5% 6.4% 56.7%
12.5% 37.5% 0.0% 50.0%
Do you plan to switch auditors? Yes No
2.6% 97.4%
8.3% 91.7%
20.0% 80.0%
Do you use firms other than your primary auditor for statutory audits? No - Only use primary financial statement auditor Use other auditors on an exception basis only Statutory auditor is selected based on fees or other criteria N/A
55.5% 15.5% 16.4% 12.6%
61.2% 6.5% 8.2% 24.1%
66.7% 11.1% 0.0% 22.2%
364
Number of Responses How long have you used your current auditor?
Copyright 2009 Financial Executives Research Foundation (FERF) www.ferf.org. No part may be reprinted or distributed without approval from FERF. 21
Audit Fee Survey/May 2009 Exhibit G: Structure of Audit Team Total
u.s.
u.s.
Public
Private
Foreign
110
245
9
Centralized - All work performed by one team
48.4%
78.3%
62.5%
Decentralized Lead engagement team responsible for financials. Local engagement teams perform work at other locations
51.6%
21.7%
37.5%
Centralized - All work performed by one team
23.0%
56.6%
50.0%
Decentral ized Local engagement team responsible for other locations Lead engagement team has limited involvement with filings
59.5%
30.1%
50.0%
Hybrid Local engagement team responsible for other locations Lead engagement team involved in filings
17.5%
13.3%
0.0%
364
Number of Responses For your integrated audit, from a global standpoint, how is your audit engagement team structured?
For your statutory audit, from a global standpoint, how is your audit engagement team structured?
Copyright 2009 Financial Executives Research Foundation (FERF) www.ferf.org. No part may be reprinted or distributed without approval from FERF. 22
Audit Fee Survey/May 2009 Exhibit H: Tax and Other Professional Services Total
Number of Responses
364
u.s.
u.s.
Public
Private
Foreign
110
245
9
Do you use other accounting firms for tax or benefit plan admin? Yes No
62.7% 37.3%
53.5% 46.5%
44.4% 55.6%
What types of tax services do you use? (Check all that apply) Tax planning Assistance with tax return preparations Assistance with transfer price calculations
52.8% 66.4% 31.8%
58.8% 88.6% 11.8%
11.1% 33.3% 11.1%
$145,100 31
$17,300 30
$48,000 55
$13,900 126
If you have a defined benefit pension plan, what is the cost of the audit? Number of responses If you have a defined contribution pension plan, what is the cost of the audit? Number of responses
Copyright 2009 Financial Executives Research Foundation (FERF) www.ferf.org. No part may be reprinted or distributed without approval from FERF. 23
Audit Fee Survey/May 2009 Exhibit I: Cost of Corporate Tax Services by Sales Revenue Annual Sales Revenue Average of All Responses
Less than $25 million
$25 to $99 million
$100 to $499 million
$500 to $999 million
$1 to $4.9 billion
$5 to $14.9 billion
$15 to $24.9 billion
More than $25 billion
U.S. Public Number of Responses Percent of Responses Total Cost of Tax Services
66 100.0% $764,300
Cost as a % of Revenue
12 18.2%
3 4.5%
12 18.2%
9 13.7%
15 22.7%
8 12.1%
2 3.0%
5 7.6%
$31,600
$88,300
$302,900
$865,700
$987,500
$1,106,300
$1,450,000
$2,362,000
0.16%
0.04%
0.03%
0.03%
0.01%
0.00%
0.00%
0.01%
U.S. Private Number of Responses Percent of Responses
151 100.0%
19 12.6%
60 39.7%
49 32.5%
15 9.9%
7 4.6%
0.7%
Total Cost of Tax Services
$59,400
$22,500
$32,300
$83,800
$96,600
$120,000
$200,000
0.11%
0.01%
0.01%
0.00%
0.00%
0.00%
Cost as a % of Revenue
Copyright 2009 Financial Executives Research Foundation (FERF) www.ferf.org. No part may be reprinted or distributed without approval from FERF. 24
About the Author William M. Sinnett is Director of Research at Financial Executives Research Foundation, Inc. (FERF). He received his Masters of Business Administration degree from the University of Pittsburgh. Prior to joining FERF, he held positions in financial management with Mellon Bank and Carnegie-Mellon University in Pittsburgh.
Bill can be reached at
[email protected] or (973) 765-1004.
About Financial Executives Research Foundation, Inc.
Financial Executives Research Foundation, Inc. is the resea rch affiliate of Financial Executives International. Financial Executives Research Foundation is the non-profit 501(c)(3) research affiliate of FEI. FERF researchers identify key financia l issues and develop impartial , timely research reports for FEI members and non- members alike, in a variety of publication formats. The Foundation relies primarily on voluntary tax-deductible contributions from corporations and individuals.
The views set forth in this publication are those of the author and do not necessarily represent those of the Financial Executives Research Foundation Board as a whole, individual trustees, employees, or the members of the Advisory Committee. Financial Executives Research Foundation shall be held harmless against any claims, demands, suits, damages, injuries, costs, or expenses of any kind or nature whatsoever except such liabilities as may result solely from misconduct or improper performance by the Foundation or any of its representatives. Research Foundation http://www.ferf.org.
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