Over the summer, we investigated the auditor market share for SEC registered companies. In that post, we highlighted what we saw as an interesting stratification of the public company audit market. The smaller the group of companies, the more competitive the market. A mere 28 firms audited Large Accelerated filers, but the Big Four accounted for almost 93% of that market. Further, only six different audit firms – the “Global Six” – audited 89% of both Large Accelerated and Accelerated Filers (3,107 companies), while 97 other firms fought over the remaining 11%.
For Smaller Reporting Companies, however, the market for audit services explodes; a whopping 420 different firms provide audit services to 3,324 smaller reporting companies, and the Global Six account for only about 10% of the Smaller Reporting Company market.
In terms of the number of companies audited, then, the Smaller Reporting Company Market is slightly larger than the Large and Accelerated filer market, with 3,324 companies compared to 3,107. But in terms of the market capitalization of these companies, it’s pretty lopsided: Large and Accelerated filers account for almost 97% of total market capitalization.
Every year, Audit Analytics releases its annual Audit Fees and Non-Audit Fees report. We touched on some of the key findings from that report recently. The report covers Accelerated and Large Accelerated filers only, so what do audit fees look like for these 3,000+ Smaller Reporting Companies that altogether constitute less than 3% of the total market capitalization of US public companies? With so many companies of such varying size, and with 420 different audit firms competing for market share, one would expect the fees to be all over the map. Indeed, audit fees among these companies in 2013 ranged from a healthy $2.7 million, all the way down to a paltry $500.
In the rest of this post, we will run through some statistics regarding the 2013 audit fees for these Smaller Reporting Companies.
Of the 3,324 Smaller Reporting Companies identified in the public company market share analysis we did back in the summer, 3,145 disclosed a total of over $332 million in audit fees for 2013, at an average rate of over $100,000. As can be seen from the table above, however, the audit fees for these companies are heavily skewed. Although total audit fees are quite substantial, the median is $46,300 – in other words, there are as many companies with fees below that amount as companies with fees above it. Only 17 companies paid more than $1 million in audit fees, and only one third paid more than $100,000.
The ranking of top 10 firms in terms of audit fees among these companies offers little surprise. Interestingly, though, the Big Four, which have only about 5% of market share in terms of the number of these companies audited, are all in the top 10 in terms of fees. The Global Six are all well-represented here in this table, and other national firms – McGladrey, Marcum, Crowe Horwath, and EisnerAmper – appear as well.

Note: Diligent Board Member Services and American Apparel are now accelerated filers; Diligent and Liquid Holdings are both Emerging Growth Companies.
The table above lists the ten Smaller Reporting Companies that had the highest audit fees in 2013.
Lastly, let’s compare audit fees as a percentage of revenue between these Smaller Reporting Companies and the population of Accelerated Filers highlighted in our annual Audit Fees report.
There are some interesting contrasts here. Total audit fees for 3,145 Smaller Reporting Companies were $332 million, compared to over $8 billion for about 2,300 accelerated filers, which is about 24 times larger. Revenue for the SRCs was $65.5 billion, compared to $16.9 trillion(!) for the accelerated filers, which is about 258 times larger. This disproportionate relationship is evident in audit fees as a percentage of revenue. Smaller Reporting Companies pay over $5,000 in audit fees (on average) for every $1 million in revenue, whereas Large Accelerated and Accelerated filers pay only $479 in audit fees for every $1 million in revenue.
Smaller Reporting Companies are a very different breed of company from Accelerated filers, especially Large Accelerated filers. As the tables show, hundreds of firms provide audit services to thousands of companies, with an extremely wide range of audit fees. From development stage and shell companies to fairly well developed organizations, there is a menagerie of company types, and the audit firms that serve them are likewise varied.