Average audit fees grew 6.41%

Overall average audit fees increased by 6.41% from 2022 to 2023, according to a new report.

The annual report, released Tuesday by Financial Executives International’s Financial Education & Research Foundation, found that the average audit fee increased to $3.01 million in 2023, up from $2.83 million in the previous cycle, reflecting a 6.41% rise based on a representative sample of public company filings. The report is based on surveys distributed to FEI members and interviews between August and October of this year. Representatives from 123 private companies and nonprofits and 50 public company members participated in the research. 

Some of the factors behind the increase include inflationary pressures, along with the increased amount of effort that auditors need to put into their jobs to meet evolving standards. Over half (57%) of member company respondents indicated they’ve been working harder to support their organization’s 2023 audit, compared to the previous year. Changes to internal controls over financial reporting were cited as the most common contributor to the increase in company audit effort (43%), followed by 29% for various reasons, including changes to organizational structure, M&A, turnover in company or audit team staff, and restatement and/or internal control deficiencies. 

The Public Company Accounting Oversight Board’s emphasis on internal controls and processes, together with companies continuing their digital transformation journeys, are driving increased IT audit efforts. Last year only 53% of respondents saw an increase in their auditor’s IT audit effort. Now, 72% of respondents are citing an increase. IT audit efforts are expected to rise in the years ahead. 

Despite all the hype around the use of artificial intelligence, AI has been applied to fewer than 20% of public company audits and fewer than 3% of private company audits, according to the survey respondents. The use cases for AI still haven’t evolved beyond other tools and techniques such as general ledger anomaly detection and financial statement tie-out.

“Over the past couple of years of relative calm in the financial reporting ecosystem, our members worked with their auditors to deliver high-quality financial reporting,” said Andrej Suskavcevic, president and CEO of Financial Executives International and the Financial Education & Research Foundation, in a statement. “As financial stewards, our members are keenly aware of the impacts of inflation on their audit fees and by extension, their organization. We expect to see further increases in audit fees as notable changes to financial reporting unfold. Specifically, the FASB’s Disaggregation of Income Statement Expenses standard represents a potentially large burden to implement and audit. In addition, audit firms will need to implement and comply with several new PCAOB standards in the next several years.”

Private companies, on the other hand, listed new FASB standards as the biggest factor contributing to their team’s effort to support the most recent external audit, followed by acquisitions. Accounting changes weren’t seen as a significant cause of increased team audit effort for most public companies, according to the respondents, but that could just be a difference in timing. Several standards went into effect for public companies at the end of the 2010s, while private companies had a later effective date, along with more flexibility on when to adopt changes to GAAP.