US audit fees lagging inflation squeeze accountants
Audit fees have now fallen in real terms for three years. They fell for the average U.S. company in absolute terms in 2020 when the pandemic hit, and the benefits for the Big Four of a small rebound in 2021 were wiped out by soaring inflation, according to data from Audit Analytics. Dillon Papenfuss, director of research at Financial Executives International (FEI), which represents chief financial officers and corporate treasurers, said audit firms will likely push for shorter contracts in the future, so they can more quickly pass along cost increases to the clients. Changing audit firms regularly is not mandatory in the US, and the complexity of changing firms gives the incumbent a strong negotiating hand. But IT improvements have also had an effect on rate negotiations, Papenfuss said. Companies have digitized more of their financial functions, so you can argue that external auditors don't need to do as much work to verify accounts, while audit firms have also improved their technology and companies.Firms view audit fees as a cost of compliance, rather than an added value,” said Jeffrey Johanns, a former Big Four audit partner who teaches accounting at the University of Texas at Austin. Inflation and threats of recession Job Function Email Database have led companies to focus more on costs in the last year, and executives have put significant pressure on all types of professional fees. Consulting firms have borne the brunt as clients reconsider the value of projects, pausing or even eliminating significant amounts of work. Deloitte, EY and KPMG have announced job cuts in the US this year, following a slowdown in parts of their consulting arms, and KPMG last week announced a second round of layoffs that would extend to the audit area of the business.
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The average masks significant increases and decreases in some companies, which may reflect changes in the scope of the audit based on M&A activity or other factors. Companies and auditors alike hoped that 2022 could usher in a change in rates. Audit Analytics said in its annual fee study last October that auditors may need to increase fees to reflect the added complexity of new accounting rules. FEI said in November that “demand for qualified accounting and finance talent continues to increase, as do increases in salaries across the accounting profession. . . and we anticipate that they will be a key factor in changes in audit fees in future periods.
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