Audit Analytics has released its annual audit fees report, Audit Fees and Non-Audit Fees: A Fifteen Year Trend, which focuses on the audit and non-audit fees paid and disclosed by accelerated and large accelerated filers.
A review of non-audit fees as compared to audit fees is of interest because the SEC considers high non-audit fees to be an auditor independence concern. To address this concern, the SEC created categories that require registrants to disclose audit fees accordingly; Audit Fees, Audit-Related Fees, Tax Fees, and All Other Fees. At times, analysts prefer to view audit fees in isolation while others prefer to see audit fees and audit-related fees together For this reason, Audit Analytics provides both approaches.
Audit fees have continued to increase over the last six years, climbing from $7.6 billion in 2010 to $9.2 billion in 2016. Similarly, the ratio of audit fees over revenue also increased to $541 per $1 million of revenue.
As you can see in the graph below, in 2002, non-audit fees comprised 51.5% of the total fees paid by accelerated filers. After a strong decline in 2003, 2004, and 2005, non-audit fees have leveled off to values between 20% and 22%.
Non-audit fees without audit-related represented about 10.8% of the total fees paid by accelerated filers in 2016, less than one third the percentage value of 2002 (see report for more details).
One factor that likely contributed to the increase in fees in 2013 and thereafter was the effort that the PCAOB employed to ensure a proper assessment of a company’s internal controls over financial reporting (ICFR). Section 404 of the Sarbanes-Oxley Act (SOX 404) contains two provisions that apply to accelerated filers: 1) the management assessment and 2) the auditor attestation. To provide guidance to auditors regarding their review of a company’s ICFR pursuant to the auditor attestation requirement, the PCAOB issued Auditing Standard No. 5, An Audit of Internal Control Over Financial Reporting That is Integrated with an Audit of Financial Statements (AS 5). In October of 2013, the PCAOB published Staff Audit Practice Alert No. 11, Considerations for Audits of Internal Control Over Financial Reporting, to highlight the deficiencies observed and the responsibilities dictated by AS 5.