This post is part 2 of Audit Analytics’ comprehensive overview of Audit & Total Fee Trends of the S&P 500.
An audit is unique to each individual company, whether they are a large-accelerated company or a small-reporting company. There are no strict rules on how much companies pay for audit or non-audit services out of total fees. As a result, external auditing firms collect a wide range of fees for audit and non-audit services.
In recent years, auditor independence has been a focus in the auditing community. The SEC has taken further advances into restricting allowable non-audit services performed by the auditor.
It’s believed that such restrictions encouraged EY, one of the Big 4 firms, to split their firm to form a consulting branch. “The SEC is investigating potential conflicts of interest at the Big 4 and some mid-tier audit firms,” as quoted by the Wall Street Journal. Consequently, these investigations into conflicts of interest may prompt some audit firms to consider splitting off their advisory arms to ensure auditor independence.
Audit Analytics recently released its annual Audit Fee Report, offering a comprehensive overview of the SEC audit fee market. In this blog analysis, we focus on audit and non-audit fees for the S&P 500 and across its different industries.
S&P 500 Fee Breakdown
The SEC requires the disclosure of audit fees into four categories: Audit fees, audit-related fees, tax fees, and other fees.
The fee categories can be broadly grouped into two categories: audit fees and non-audit fees. Audit fees capture fees paid to the auditor that are directly related to the audit. Non-audit fees capture fees paid for services provided outside of the audit itself. These two broad fee categories can be viewed as both inclusive and exclusive of audit-related services.
In general, audit fees that are inclusive of audit-related fees have steadily contributed about 90% of the total fees paid by the S&P 500 from fiscal years 2019 to 2021. Comparatively, audit fees exclusive of audit-related fees contributed just under 80% of total fees over the last three years. These amounts changed little from one year to the next.
For a more granular look into fee categories, the chart below shows the percentage amounts each fee category contributed to total fees for the S&P 500 companies. Audit fees paid by the index provided 79.1% of total fees in 2021.
Over the last three years, audit-related fees notably had the largest increase out of all fee classifications for the index.
Audit-related fees contributed to 10.4% of total fees paid in 2019, increasing to 11.2% in 2021. To put into perspective how much growth that is, $680.5 million was paid in 2019 for audit-related fees compared to $729.3 million paid in 2021.
During 2019 through 2021, both tax fees and other/misc. fees paid by the S&P 500 declined. Tax fees provided 10.1% of total fees in 2019 and 8.3% in 2021. Other/misc. fees contributed 1.1% in 2019 and 0.8% in 2021.
Industry Fee Breakdown
The chart below displays the percentage amounts each fee category contributed to total fees by industry of the S&P 500 companies for the fiscal year 2021.
S&P 500 companies within the Mining and Other industries lead in the highest percentage of audit fees out of total fees, each with a little over 87%. Interestingly, Mining paid $39.2 million in audit fees, despite paying the second lowest amount across all industries.
The Wholesale Trade industry paid the least percentage of audit fees: 74.7% out of their total fees paid.
The Finance, Insurance, and Real Estate paid the highest percentage of audit-related fees, contributing 17.4% toward total fees, amounting to $299.1 million. Out of total fees, Mining contributed close to 4.5% in audit-related fees, the lowest out of all industries.
Tax fee percentages were highest for Wholesale Trade, contributing 11.4% of the industry’s total fees. Finance paid the lowest percentage of tax fees, contributing 5.6% of their overall fees. This amounts to $96.8 million, the second highest amount of tax fees out of the index.
The percentage of other fees was comparatively close across all industries. No industry’s other fees contributed more than 1% of the total fees paid.
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