The median reported fee increase among 83 public-company respondents — a majority of them at Fortune 500 companies — was 2.5%, following a median hike of only 1.3% for 2016.
The numbers were reported in the latest Audit Fee Survey Report, released on Tuesday, from the Financial Education and Research Foundation (FERF), the independent research affiliate of Financial Executives International (FEI).
Audit fees are growing much faster for private companies. They were up a median of 3.2% in 2017, although that was lower than the year-earlier 3.7% figure.
Reasons cited for fee increases in the public sector were unsurprising: the impact of new accounting standards, particularly those for revenue recognition and leases; a high level of merger and acquisition activity; and detailed documentation responding to Public Company Accounting Oversight Board inspection reports and staff alerts.
Despite rising fees, companies many actually have gotten a bargain, as the median number of hours external auditors expended on a company expanded by almost 50% in 2017, to 17,000 hours.
In larger organizations, automation is another factor in rising audit fees, according to the study, which was sponsored by Workiva.
“The last year has seen financial departments focus heavily on improving audit management and control strategies through smarter uses of human resources and technology,” said Andrej Suskavcevic, chief executive of both FEI and FERF. “Inevitably, complying with new standards and oversight requirements brings new responsibilities [for auditors] and, in some cases, additional work and related fees.”
In particular, “automation may increase audit-related costs in the short term as automation-related controls are validated,” according to the report. “But it will help reduce costs in the intermediate term and beyond as auditors become more comfortable and the technology matures.”
Further, automating such tasks as account reconciliation and the transfer of data between finance systems is expected to increase companies’ operating efficiency. That likely would have a bigger impact on overall costs than audit fees.
Beyond automation, respondents indicated that maintaining a collaborative relationship with an audit firm is a key to mitigation potential fee increases.
“This collaboration increasingly involves asking for more detailed audit plans and scoping documents, reviewing proposed corporate transactions with auditors to understand the accounting and reporting implications, and shifting as much work as possible outside the year-end close and audit processes,” the report states.