The decline in audit fees since 2007 has been a boon for companies, which have struggled to cut costs for most of that period. But are investors getting the short end of the deal?

Lynn Turner, a former chief accountant at the Securities and Exchange Commission, thinks that may be the case. Turner, who sits on the board of a $40 billion retirement investment fund in Colorado, says investor groups get nervous when a company in their portfolio, particularly one that’s in hard times, wins a steeply lower fee.

“Our concern is [whether] you’re paying your auditor enough to make sure it does a quality audit,” Turner said on Tuesday during a panel discussion at the annual CFO Rising West conference in Las Vegas. “We don’t view audits as a commodity. We don’t want the Wal-Mart audit.”

Turner described a lasting distrust among investors of the accuracy of financial statements following the audit failures that contributed to the scandals at Enron and WorldCom in the early 2000s. That lack of confidence has been a significant factor in the overall poor performance of investment markets during the past decade and caused capital to flow away from the United States, he suggested.

As reported in CFO magazine in April (“Auditing Your Auditor”), audit fees fell by an average of 8% in 2008 for companies with revenues of $100 million to $250 million, and by 5% for those in the $250 million to $500 million range. There were only marginal decreases for larger companies, but as CFO reported last month, fees continued to fall overall in 2009, albeit at a slower pace.

But those numbers applied only to ongoing auditor engagements and not to companies that switched auditors, with the carrot of a much-reduced fee often playing a part in the decision. One such company, featured in the April article, was IDT, which in 2008 dropped Ernst & Young for Grant Thornton — and in the process saw its $4.3 million audit fee slashed almost in half. Based in part on new efficiencies in its in-house accounting and internal-audit departments that reduce the workload for Grant Thornton, IDT has since pared its annual fee to just $1.3 million.

The reduction is also attributable to IDT’s marked downsizing since 2008, which featured the sell-off of 12 companies. But, Turner observed, “the audit-fee drops were not commensurate with the downsizing in the balance sheet.”

Bill Pereira, CFO of IDT and also a panelist at CFO Rising, defended the quality of the audit work performed by Grant Thornton. “The last thing I want is to compromise an audit,” he declared. “Obviously, I want the best audit possible. But that doesn’t mean we shouldn’t be able to push auditors to be as efficient as possible or to price their goods as competitively as possible.”

Audit firms do a good job at the negotiating table of telling clients what they’re doing wrong from a process standpoint. If you’re paying attention, Pereira said, you can indeed win a lower fee.

Turner said he also came away from the April article with a troubling sense that at some of the companies mentioned, decisions on auditor engagements were driven by CFOs and not, as required by the Sarbanes-Oxley Act, by audit committees. That is a growing concern, he said, predicting that the Public Company Accounting Oversight Board will act to further beef up the role of audit committees.

Pereira said that while he and his team did much of the legwork in engaging Grant Thornton, the decision was made solely by the audit committee.

Private companies, meanwhile, have a different set of issues with regard to auditor engagements — starting with the decision whether to actually have a formal audit. Companies hear in their search for capital that they need a set of audited financial statements, “but when pressed you may find out that it wasn’t really necessary,” said panelist Don Doherty, CFO of MI Windows and Doors.

Banks offering increasingly popular asset-based lending facilities “don’t really care about audited financial statements,” said Doherty. Getting an appraisal of the worth of whatever the company is using as collateral and sending in their own auditors to document its existence is enough for the banks, he observed.