Key Takeaways:

  • According to a report by the Financial Education & Research Foundation based on surveys and data from over 4,000 institutional filings with the U.S. Securities and Exchange Commission (SEC), the average audit fee for public companies in 2023 rose 6.4% year-over-year to $3.01 million.
  • A survey of 173 respondents from public and private companies showed that, compared with 2022, changes in internal control over financial reporting were the most common driver of increased audit team workload in 2023 audits, followed by merger and acquisition and divestiture activity, as well as high turnover of key audit team members or company employees.
  • Looking ahead, Andrej Suskavcevic, President and CEO of Financial Executives International and the Financial Education & Research Foundation, said audit fees are expected to rise further as regulatory changes such as the Financial Accounting Standards Board's (FASB) new income statement expense rules approach. In a statement in the report, he said: "The FASB's Income Statement Expense Disaggregation standard will bring significant implementation and audit burdens. Additionally, audit firms will need to implement and comply with several new Public Company Accounting Oversight Board (PCAOB) standards in the coming years."

Deeper Dive:

The report noted that the continued rise in audit fees, alongside other inflationary pressures, has prompted some companies and their audit committees to consider whether to issue requests for proposals (RFPs) to audit firms. However, the report also mentioned that one respondent said focusing solely on price could be risky. The report also quoted an unnamed chief financial officer (CFO) at a large private company, who is currently taking the fee increases in stride.

"We haven't yet experienced what you might call a 'double-digit hit,'" the finance executive said in the report. "If something like that happens, we might respond, 'Okay, let's look at the hours.' We'd ask: 'Why are you doing this?' 'What is this?' 'Why did this task take you 20 hours when one of my staff accountants here could do it in 8?'"

Looking ahead, the report said upcoming new accounting regulations are expected to require more work and drive up fees, after the previous 36 months had been "relatively calm" for finance teams, who did not have to deal with "transformative adjustments" from the FASB or PCAOB.

But that status quo appears to be ending. Last month, the FASB issued new income statement expense rules, whose members acknowledged that the new requirements, aimed at providing investors with more financial reporting information, will impose additional costs on companies.

FASB board member Fred Cannon previously told CFO Dive that complying with the standard update "won't be cheap" for many companies, but the FASB has taken steps to reduce costs for preparers. The rules take effect for annual reporting periods beginning after December 15, 2026, and for interim or quarterly reporting periods beginning after December 15, 2027.