Audit Analytics’ Europe Audit Fees database provides audit fee data for public companies listed on European exchanges dating back to 2010. A review of collected fees from companies on regulated European exchanges over the last 12 years explores how these fees have changed over time. It also reveals a few interesting trends reflecting the changes to statutory audits mandated by the European Union (EU) in the middle of the last decade.
The number of public companies listed on regulated European exchanges that disclose audit fees has remained relatively consistent for the past 10 years. Although the number of companies increased by only 0.5% from 2020 to 2021, the rise in total fees was much more significant.
Audit Fees Overview
Fiscal year 2021 saw the highest amount of total fees reported over 12 years, increasing 6.1% from 2020. This is the largest year over year increase since 2014.
This is similar to the trend seen with audit fees paid by SEC-registered companies over the same period, as found in the Audit Analytics annual Audit Fees Report. As with Europe fees, total fees in the SEC audit fee market also increased between 2020 and 2021.
Looking at average fees, we can see a breakdown of the four main fee types more clearly.
Average audit fees began to steadily increase starting in 2014 and reached their peak in 2021 at just over €1.1 million. This is a 5.4% increase from 2020. In contrast, non-audit fees followed a much less consistent trend. Average fees categorized as “other” overtook audit-related fees as the highest non-audit fee category beginning in 2015. Audit-related and other fees both saw an increase in 2021, while average tax fees decreased last year for the first time since 2017.
“Other” fees is a broad category. It represents fees paid to the external auditor for services unrelated to the audit itself. This includes services such as IPO and prospectus procedures, advisory services, and legal fees.
Up until 2020, audit fees per €1 million of revenue varied between about €330 to €370. Due to the COVID-19 pandemic, many companies experienced significant losses to their revenue. Subsequently, audit fees per €1 million of revenue to increased to €428 in 2020. In 2021, however, companies were able to recover revenue, reducing audit fees to €384 per €1 million of revenue.
Relationship Between Audit and Non-Audit Fees
In 2014, the European Parliament passed two significant pieces of legislation related to statutory audits. Taking effect on June 17, 2016, Directive 2014/56/EU and Regulation (EU) No. 537/2014 were adopted and had a significant impact on companies’ engagement of statutory auditors and provision of non-audit services within the EU. Both acts contain reforms designed to protect the integrity of statutory audits, as well as strengthen auditor independence.
The legislation directly impacted audit firms’ fees in several ways. One component of the regulation prohibits the provision of certain non-audit services by statutory auditors and caps auditors’ remuneration for many other services. Given the timing of these reforms, a review of non-audit fees from 2010-2021 provides some insight into the trend before and after the new rules took effect in 2016.
The effects of this legislation are evident when looking at audit and non-audit fees as a percent of total fees over time. Until 2016, audit and non-audit fees (inclusive of audit-related fees) held a consistent 70/30 distribution. After 2016, however, we see this gap begin to widen, reaching an 80/20 split in 2021. This 80/20 distribution between audit and non-audit fees closely matches the trend seen with fees paid by US companies.
This legislation appears to have affected the Big 4 firms differently than the rest of the audit market. After 2016, the Big 4 firms’ percentage of non-audit fees began to decline rapidly. Over the last five years, there was an eight percentage point drop. In comparison, non-Big 4 firms dropped only 3.9 percentage points between 2017 and 2020.
Non-Big 4 firms have always had a significantly smaller percentage of non-audit fees than Big 4 firms. However, over the twelve-year period observed, that gap has been narrowing. In 2021, the percentage of non-audit fees for non-Big 4 firms rose to 9%. Big 4 firms saw their lowest-ever non-audit fee percentage in 2021 at 10.5%. This 1.5 percentage point gap is the smallest difference in non-audit fees between Big 4 and non-Big 4 firms over the period observed.
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