Big-Company Audit Fees Ease Up, According to Exclusive Compliance Week Analysis

BOSTON--(BUSINESS WIRE)--Corporate America is finally winning its long war to rein in the soaring cost of external audits, according to an exclusive Compliance Week analysis of audit fees paid by large companies in 2007. The study, which examines audit fees paid by S&P 500 companies with more than $1 billion in annual revenue, showed only a 3.2 percent median increase over audit costs in 2006.

Further, when audit fees at a handful of 2007 companies with extraordinary transactions are eliminated from the calculation, the average audit fee in 2007 actually fell by 0.3 percent—the first decrease since the dawn of the Sarbanes-Oxley era.

The results are the first quantifiable data suggesting that reforms enacted last year to ease the burden of SOX compliance may be working. Regulators approved Auditing Standard No. 5 (AS5) —the standard that external audit firms use to judge a company’s control over its financial reporting—to encourage a more “principles-based” approach, rather than the exacting and expensive tests auditors had used to judge SOX compliance since the law went into effect in 2004.

“This is evidence that the real growing pains of the Sarbanes-Oxley Act are now well behind us,” says Matt Kelly, editor in chief of Compliance Week. “Large companies now have four years of SOX compliance under their belts. Their major accounting weaknesses were rooted out years ago. The painful spikes in fee increases are over, and companies now appear to have a solid understanding of what their auditors want, and how to work with their auditors to keep costs down while complying with the law.”

“Audit fees are increasing, but the rate of increase seems relatively reasonable considering inflation and the high demand for auditors who can handle the sophisticated audits SOX compliance requires,” Kelly says. “Most other functions an auditor might help with—tax work, for example—are seeing less turbulence.”

Among the results:

• The increase in median audit fees from 2006 to 2007 – 3.2 percent – compares to a 4.4 percent increase in median audit fees from 2005 to 2006.
• Total fees to auditors – including tax fees, audit related costs, and other fees – rose 3.4 percent last year. That compares to a 2.7 percent increase in 2006, but the change during that year included a sharp drop in tax fees and a higher spike in audit fees. During fiscal 2007 results show almost no change in tax fees, audit-related fees, or other fees; the increase is almost entirely due to audit fees specifically.
• The median total auditor costs for companies was $6.9 million in 2007, compared to $6.7 million in 2006 and $6.3 million in 2005. Median costs for audit fees specifically in 2007 were $5.6 million.
• On average, audit fees were 84 percent of a company’s total fees paid to auditors.
• Median audit-related costs were $401,000, and median tax fees were $400,000.
• As a whole, last year Corporate America paid $490.5 million to its auditors for tax fees—up 7.6 percent from the $455.8 million paid in 2006. (Since so many companies individually paid no tax fees at all, however, the median tax fee appears as zero.)

About Compliance Week’s Audit and Non-Audit Fee Analysis

Compliance Week’s 2006/2007 Audit and Non-Audit Fee Analysis of S&P 500 Companies with More than $1 Billion in Revenue (2007) was compiled by Compliance Week’s Custom Research department in July 2008. The analysis is based on company revenue data as submitted in corporate filings provided to the SEC.

Results of the audit fee research analysis will be made available to Compliance Week subscribers on Tuesday, July 29, and are available to members of the press on a limited basis. Details can be found at http://www.complianceweek.com or by contacting the publication, below.

About Compliance Week

Compliance Week is a magazine and newsletter on corporate governance, risk, and compliance that reaches over 20,000 financial and legal executives at public companies. Available in print and online, Compliance Week features the insights of numerous governance and securities experts, including former Securities and Exchange Chairman Harvey Pitt. For more information on Compliance Week, visit http://www.complianceweek.com.

All trademarks, trade names, service marks, and logos referenced herein belong to their respective registered owners.