“The partnership between public companies and their external auditors, especially this year, was paramount to being able to continue to report high quality information in a timely manner.” said Andrej Suskavcevic, CAE, Pres. & CEO of FEI and FERF.
MORRISTOWN, N.J. (PRWEB) February 25, 2021
The Financial Education & Research Foundation (FERF)—the independent non-profit research affiliate of Financial Executives International (FEI)—today released the findings of its 11th Annual Public Company Audit Fee Study.
The Audit Fee Study looks at various factors affecting financial reporting and the external audit. This includes value derived from external audits, auditor insights, public company preparer opportunities to reduce audit effort and observations about COVID-19’s impact on financial reporting as well as key factors driving audit fee changes.
Overall, the growth in average audit fees continued, increasing six percent from 2018 to 2019 due to expanded audit scope. Fifty-six percent of public company respondents cited accounting standards changes as the major driver, with 21 percent indicating acquisitions as the second largest. Related, 42 percent of auditor respondents indicated that changes to internal controls over financial reporting (ICFR) contributed most to their team’s effort to complete the most recent audit. Separately, most public companies indicated that in 2019, their external audit enhanced the quality of their financial reporting.
The COVID-19 Impact
Sixty-nine percent of public company respondents indicated that their external audit and quarterly reviews had been impacted to some extent by COVID-19. Specifically, the virtual execution of internal controls and virtual retention of internal control documentation had the most effect on those processes—each being confirmed by 50 percent of the respondents and 48 percent of the respondents respectively.
Notably, 62 percent of auditors stated COVID-19 and auditing in a remote environment increased integrated audit efforts subsequent to the start of the pandemic including quarterly reviews. When ranking the elements of those integrated audits including quarterly reviews that were most impacted, 72 percent of the auditors responding to the survey cited managing and training teams in a virtual environment, 60 percent cited client inquiries and meetings, and 45 percent cited goodwill and asset impairment considerations.
Looking forward, 87 percent of public company respondents expect there to be an increase in virtual meetings with external auditors whereas 83 percent of public company respondents anticipate a reduction in audit team time spent on site as a result of the pandemic.
Other Key Highlights:
- 77 percent of public company respondents stated that their public auditor provided permissible insights.
- 82 percent of public company respondents stated that their auditors have deployed data analytics or emerging technologies as part of the audit process.
- 56 percent of auditor respondents cited that additional audit assistance could be provided by management’s ICFR team and or internal audit function that would reduce audit effort without impacting audit quality. Moreover, when asked what experience would be most beneficial to increasing external audit reliance on internal audit, 46 percent of auditors cited additional experience testing IT general controls and/or application controls, whereas 24 percent cited experience assessing internal control exceptions and/or deficiencies.
“Despite the disruption to the financial reporting process caused by COVID-19, public companies and their external auditors showed amazing adaptability and agility,” said Andrej Suskavcevic, CAE, President and CEO of Financial Executives International and Financial Education & Research Foundation. “The partnership between public companies and their external auditors, especially this year, was paramount to being able to continue to report high quality information in a timely manner.”
Methodology and Sources
The FERF 2020 Public Company Audit Fee Study Report examines audit fees companies paid to external auditors for auditing and related services for the period between June 2019 and May 2020. The report is based on responses from more than 50 financial executives at public companies and an additional survey of 88 audit engagement partners. In addition, the report also examines audit fees as reported by nearly 6,200 SEC filers.
Audit fee information obtained from SEC filings was provided by idaciti. The survey was sponsored by the Center for Audit Quality. The 11th Annual Public Company Audit Fee Study Report can be obtained by visiting the online FERF bookstore at http://www.ferf.org/reports.
The Center for Audit Quality (CAQ), the organization dedicated to enhancing investor confidence and public trust in the global capital markets, contributed to this the report, including conducting a survey of audit engagement partners.
About Financial Education & Research Foundation, Inc.
Financial Education & Research Foundation (FERF) is the non-profit 501(c)(3) research affiliate of Financial Executives International (FEI). FERF researchers identify key financial issues and develop impartial, timely research reports for FEI members and nonmembers alike, in a variety of publication formats. FERF relies primarily on voluntary tax-deductible contributions from corporations and individuals, and publications can be ordered by logging onto https://www.financialexecutives.org/Research.aspx
Financial Executives International (FEI) is the leading advocate for the views of corporate financial management. Its members hold policy-making positions as chief financial officers, chief accounting officers, treasurers, and controllers at companies from every major industry. FEI enhances member professional development through peer networking, career management services, conferences, research, and publications. Members participate in the activities of more than 65 Chapters in the U.S. FEI is located in Morristown, NJ. Visit http://www.financialexecutives.org for more information.
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About the Center for Audit Quality (CAQ)
The CAQ is an autonomous public policy organization dedicated to enhancing investor confidence and public trust in the global capital markets. The CAQ fosters high-quality performance by public company auditors; convenes and collaborates with other stakeholders to advance the discussion of critical issues that require action and intervention; and advocates policies and standards that promote public company auditors’ objectivity, effectiveness, and responsiveness to dynamic market conditions. Based in Washington, DC, the CAQ is affiliated with the American Institute of CPAs.