Accounting & Tax

Audit Fees on the Rise

It's no surprise that audit bills have gotten a whole lot bigger.
Alix StuartOctober 1, 2002

Better usually means more expensive. So it’s no surprise that audit bills have gotten a whole lot bigger, thanks to a raft of new projects — such as internal control certifications — that the Sarbanes-Oxley Act of 2002 handed to auditors.

“Audit committees are asking us to do more work, visit more locations, and get involved with different types of issues,” says Dennis Nally, PricewaterhouseCoopers’s U.S. chairman and senior partner. “That translates into more audit fees.”

Overall, prices at the Big Four are likely to rise between 15 and 25 percent this year, according to industry experts — and that’s just “tranche one,” says Greg Weaver, national managing partner at Deloitte & Touche. “We will probably see another increase next year.”

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Some say audit firms will also be forced to raise per-hour fees to make up what they’ll lose on consulting. “The only alternative will be to increase audit fees,” says Jay Nisberg of Jay Nisberg & Associates, a consultancy for audit firms.

Auditors don’t see it that way. Instead, they say a client’s risk factors will make the big difference in price. “We really didn’t differentiate [on risk] as much as we should have in the past,” says Weaver. Deloitte is currently culling its portfolio to drop companies that are too risky, he says. “We’ll be more like a bank that’s lending a company money.”

Then there is the contention that the small oligopoly of four firms will have more power to raise prices. The comptroller general will complete a study on the effects of consolidation in the accounting industry, including pricing, by next July. “I wouldn’t be at all surprised if the SEC steps in and tells the audit firms what prices they can charge,” says Nisberg.

One way for small and midsize businesses to save money: Switch to a local auditing firm. Their fees are some 35 to 40 percent lower than the Big Four’s, according to Bowman’s Accounting Report editor Arthur Bowman. While there hasn’t been a massive exodus to smaller firms yet, that could change. Bowman estimates their fees will increase only 3 to 16 percent.

Smaller Is Cheaper

Companies moving from Big Five to smaller audit firms.

Number of companies*

% of all auditor changes


*Firms with over $100 million in revenues or assets
**As of September 4, 2002
Source: Auditor-Trak