Two annual reports on audit and other fees paid to auditors have been released, and both reach the same conclusion: Fees hit a new high in 2023. Ideagen Audit Analytics’ (IAA) annual analysis of fees paid to external auditors finds that in 2023 the average total fees that SEC-registered public companies paid to external auditors increased 13 percent over 2022 and hit a 20-year high of $3.064 million. The 2023 average tops the record set in 2022, when the average fee total was $2.715 million. Similarly, the Financial Executives Research Foundation’s (FERF), annual fee survey finds that average audit fees increased 6.4 percent from 2022 to 2023. Last year FERF reported that the average audit fee increased 4.6 percent from 2021 to 2022. While these two studies have somewhat different methodologies and databases, both make clear that the long-term upward fee trend showed no signs of abating in 2023.
Ideagen Audit Analytics
IAA’s analysis, Audit Fee Trends: A 20-year review, is based on the Audit Analytics SEC Audit Fee database, which includes all filers under the Securities Act of 1933 and the Securities Exchange Act of 1934 since 2000. Fee information comes from SEC Forms 10-K, 20-F, 40-F, and DEF 14A, although IAA’s analysis excludes subsidiaries and affiliates that are included in a parent's audit fees and Investment Company Act of 1940 filers. For a discussion of last year’s IAA fee report, see The Average Audit Fee Reached an All-Time High in 2022, August-September 2023 Update. (The 20-year fee table in IAA’s report is inconsistent with data reported for 2023-2004 in the fee table in last year’s report, as is some of the other comparative information. The reason for these inconsistencies is not clear.)
Highlights of IAA’s report include:
Total fees SEC registrants paid to auditors increased even though the number of public companies fell. In 2023, the 6,842 public companies in IAA’s analysis paid $20.96 billion in fees to their external auditors. Compared to 2022, this represents a 0.8 percent increase in total fees, despite an eleven percent decrease in the SEC registrant population. The 6,842 public companies that reported fees for FY2023 is the lowest number of reporting companies in the 20-year period covered in IAA’s report, while the $20.96 billion in fees is the highest annual amount. As noted above, the average total fee payment in 2023 was $3.064 million, compared to $2.715 million in 2022.
The average public company audit fee also increased in 2023, along with fees for non-audit services. Total fees are comprised of audit fees, audit-related fees, tax fees, and other fees. Looking only at the audit fee component of total fees, the average company paid $2.581 million, up 13 percent from $2.255 million in 2022. The average amount that SEC registrants paid for non-audit services (i.e., audit-related fees, tax fees, and other) was $483,000, a five percent increase from $460,000 in FY2022.
Audit fees per $1 million of revenue rose, although this metric remains below its all-time high. In FY2023, audit fees per $1 million of client revenue averaged $610, an increase of 5 percent from $580 in 2022. Audit fees per million dollars of revenue peaked in FY2006 at $714. In 2013, audit fees were $557 per $1 million of revenue, the lowest in IAA’s 20-year data series.
The largest firms earn the lion’s share of fees. The four largest accounting firms collected 69 percent of audit fees paid for FY2023. Last year, IAA reported that these four firms earned 92 percent of audit fees paid by SEC registrants in FY2022, although it is unclear whether these percentages are comparable. In 2023, PwC collected the highest average fees ($5.5 million per client). Deloitte was second in average fees, followed by EY.
The average audit fee rose for companies of all sizes. In FY 2023, average audit fees increased 7.5 percent (to $5.75 million) for large accelerated filers. For the next size tier, accelerated filers, average audit fees increased by 5.5 percent to $1.62 million. The smallest public companies, non-accelerated filers, experienced a 12.4 percent increase in 2023 to $703,000.
Industry matters in terms of average fees and fees per $1 million of revenue. The 2023 highest average audit fees were in Finance ($4.078 million) and Manufacturing ($3.218 million). The industries with the lowest average audit fees were Life sciences ($1.404 million) and Real estate and construction ($1.349 million). Despite their lower average fee ranking, Life sciences companies paid the highest audit fees versus revenue -- $1,407 per $1 million of revenue – 35 percent more than the next highest industry (Industrial applications and services). Companies in the Trade and services industry paid the least in audit fees relative to revenue -- $316 per $1 million in revenue.
IAA discusses several factors that have affected audit fees during the past 20 years. For example, new accounting standards, such as those governing revenue recognition, lease accounting, and credit losses, and increased audit complexity resulted in additional auditor effort. IAA also notes that new PCAOB and IASSB auditing standards have played a role and that further auditing standards changes took effect at the end of 2024. Rising costs for audit staff labor and technology have also been factors.
On the other hand, the SEC’s 2020 change in the definition of accelerated filer mitigated the overall increase in audit fees because some companies were no longer required to obtain auditor attestation of the effectiveness of their internal control over financial reporting. In addition, the surge in special purpose acquisition company IPOs in 2020 and 2021 influenced audit fees overall and on average because “SPACs generally have lower audit fees than a traditional public company due to their lack of operations, smaller size, and short operating history.” While these two factors may have affected average fee levels in the past, they will not impact future fee level changes.
Financial Education & Research Foundation
FERF, the research affiliate of Financial Executives International (FEI), released 15th Annual Public Company Audit Fee Report on December 17. The report is available here for purchase and an FEI press release summarizes some of the findings.
FERF's report examines fees companies paid to external auditors for auditing and related services between June 1, 2023, and May 31, 2024. The report is based on surveys distributed to FEI members and qualitative interviews. Representatives from 123 private companies/nonprofits and 50 public company members participated in the research, and eight senior-level finance professionals from five public companies and three private companies completed interviews. The Calcbench financial data platform provided FERF with audit fees reported by more than 4,000 SEC filers. For a discussion of last year’s FERF report, see FERF: Audit Fees Rose 4.6 Percent in 2022, November-December 2023 Update.
In addition to the 6.4 percent 2023 audit fee increase, highlights of FERF findings, based on the FEI press release, include:
Fifty-seven percent of FEI member company respondents reported “working harder” to support their 2023 audit as compared to the previous year. Changes to internal control over financial reporting were cited as the most common reason for an increase in company audit effort (43 percent), followed by changes to organizational structure, M&A, and turnover in company or audit team staff.
Seventy percent of respondents indicated that the audit increased the quality of financial reporting. FERF attributes this to the “lack of significant changes from standard setters and regulators [which] contributed to a relatively calm audit landscape allowing for process improvements.”
Seventy-two percent of respondents reported an increase in IT audit effort, compared to 53 percent that reported such an increase last year. In FERF’s view, “[t]he PCAOB's emphasis on internal controls and processes, coupled with companies continuing digital transformation journeys, are driving elevated IT audit efforts.”
Auditors used artificial intelligence in fewer than 20 percent of public company audits and in fewer than three percent of private company audits. FERF says that “use cases for AI have not evolved beyond other tools such as general ledger anomaly detection and financial statement tie-out.”
Audit Committee Takeaways
Audit fees are likely to continue to increase. In addition to the new PCAOB standards referenced in IAA’s report, financial reporting continues to become more complex. FEI’s press release announcing the FERF report quotes Andrej Suskavcevic, President and CEO of FEI and FERF, as noting that “The FASB’s Disaggregation of Income Statement Expenses standard represents a potentially large burden to implement and audit,” and “In addition, audit firms will need to implement and comply with several new PCAOB standards in the next several years.”