2016 Annual Audit Fee Survey - Workivaanalysis of responses to FERF’s annual audit fee survey,...

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November 2016

2016 Annual Audit Fee Survey

Executive Summary 3

PUBLIC COMPANIES - SEC FILERS Audit Fees for 2015 5Primary Audit Firm 6Disclosures of Ineffective Internal Controls 7

SURVEY RESPONSESPublic Companies Audit Fee Increases by Filing Status 8 Audit Hours by Filing Status 9 Reasons for Audit Fee Increases 10 Reasons for Audit Fee Decreases 11 Initiatives to Mitigate Increases in Audit Fees 11 Primary Audit Firm 12 PCAOB Questions 12 Sarbanes – Oxley Questions 13

Privately Held Companies Audit Fee Increases 15 Reasons for Audit Fee Increases or Decreases 15 Initiatives to Mitigate Increases in Audit Fees 15 Primary Audit Firm 15

Non-Profit Organizations Audit Fee Increases 16 Reasons for Audit Fee Increases or Decreases 16 Initiatives to Mitigate Increases in Audit Fees 16 Primary Audit Firm 16

EXHIBITS: A - I 17-32

About the Author 33About Workiva 34About MyLogIQ 34About Financial Executives Research Foundation 34

TABLE OF CONTENTS

Acquisitions, reviews of internal controls and inflation continue to be among the leading factors driving increases in audit fees, although large accelerated filers and accelerated filers report success in mitigating the size of audit fee increases.

In the 2015 audit year, the median increase for all filers reviewed through SEC filings was 3.2 percent, with public companies that responded to our survey reporting a median increase of 1.6 percent and privately held filers, also surveyed, reporting a median increase of 2.9 percent.

Median fee increases also varied by company size, with non-accelerated filers reporting higher median increases than large accelerated filers, accelerated filers and smaller reported companies.

The survey results indicate fee trends are diverging among companies of different sizes. Over the past four years, large accelerated and accelerated filers experienced declines in the size of their median audit fee change. Large accelerated filers, for instance, saw average increases decline from a median 5.5 percent in 2012 to 3.8 percent in 2015.

In contrast, non-accelerated filers report median fees increasing from 1.8 percent in 2012 to 4.8 percent in 2015.

This likely suggests larger companies have had greater success with effortsto mitigate audit fee increases or to reduce audit fees, such as increasing audit preparedness, negotiating with auditors, improving internal controls,and other initiatives.

PAGE / 3 EXECUTIVE SUMMARY

OTHER KEY FINDINGS FROM SEC FILINGS INCLUDE:Audit fees paid by the 6,490 unique filers for their 2015 audits averaged $1.8 million, with a median of $522,205.

The average percentage increase in audit fees was 32.5 percent and the median increase, which reduces the effect of outliers, was 3.2 percent.

The median increase in audit fees by filer status was greatest for non-accelerated filers at 4.8 percent, and least for smaller reporting companies at 2.3 percent.

Over 1,100 filers experienced a decrease in audit fees.

However, over 300 filers experienced an increase in fees of more than 100 percent. These “outliers” tend to explain the significant difference between the average increase of 32.5 percent and the median increase of 3.2 percent.

Almost one-fifth of SEC filers reported ineffective internal controls over financial reporting (ICFR).

For fiscal 2015, the median increase in audit fees for companies with ineffective internal controls was 5.1 percent, almost two percentage points higher than the median for all SEC filings reviewed.

In addition to the analysis of SEC filing information on audit fees provided by MyLogIQ, this report also provides an analysis of responses to FERF’s annual audit fee survey, with responses submitted by executives from public companies, privately held companies, and non-profit organizations. The findings below are based on these responses.

KEY FINDINGS FROM SURVEY RESPONSES:PUBLIC COMPANIESAudit fees paid by the 89 public companies responding to the survey averaged $6.5 million, with a median of $2.4 million.

The average percentage increase in audit fees reported was 4.5 percent, and the median increase was 1.6 percent.

The average number of audit hours reported was 22,539 ($268/hour), with a median of 13,200 ($193/hour).

The most common reasons cited for audit fee increases by survey respondents were “acquisition” (reported by about one-third) and “review of manual controls from PCAOB inspections,” (cited by one-fifth of respondents).

One third of the respondents said Sarbanes-Oxley Section 404 compliance has resulted in better internal controls, and has been worth the added expense.

PRIVATELY HELD COMPANIESAudit fees paid by the 126 privately held companies responding to the survey averaged $258,935, with a median of $102,059.



About one-third of survey respondents checked “inflation” as a reason for an audit fee increase. Only about one-fifth checked “acquisition.”

NON-PROFIT ORGANIZATIONSAudit fees paid by the 30 non-profit organizations responding to the survey averaged $159,844, with a median of $84,625.



Just less than one-half (45 percent) of survey respondents checked “inflation” as a reason for an audit fee increase.

About one-third of survey respondents checked “inflation” as a reason for an audit fee increase. Only about one-fifth checked “acquisition.”

PAGE / 4 EXECUTIVE SUMMARY

PAGE / 5 PUBLIC COMPANIES - SEC FILERS

Audit fee information obtained from SEC filings has been provided by MyLogIQ. A total of 10,013 unique filers were reviewed. Of this total, 6,490 filers reported audit fees for both 2014 and 2015, so their percentage change in audit fees could be calculated. MyLogIQ has also provided audit fee information for 2012 and 2013 for comparison.

AUDIT FEES FOR 2015Audit fees paid by the 6,490 unique filers for their 2015 audits averaged $1.8 million, with a median of $522,205. Based on amounts reported by these filers, the average percentage increase in audit fees was 32.5 percent and the median increase was 3.2 percent. (The median figures reduce the effect of outliers.)

The median increase in audit fees by filer status was greatest for non-accelerated filers, 4.8 percent, and least for smaller reporting companies, 2.3 percent.

Note: Chart reflects data reported by companies within each year, and not year-to-year comparisons.

2012 2013 2014 2015SEC FILINGS 8,129 7,885 7,071 6,490Average Audit Fees $1,281,544 $1,396,833 $1,533,438 $1,817,003Median Audit Fees $263,634 $309,441 $402,812 $522,205

Average % Change in Audit Fees 30.4% 40.9% 30.9% 32.5%Median % Change in Audit Fees 3.0% 3.5% 3.4% 3.2%

MEDIAN % CHANGES BY STATUSLarge Accelerated Filers 5.5% 5.4% 4.3% 3.8%Accelerated Filers 3.4% 4.7% 4.3% 3.0%Non-Accelerated Filers 1.8% 4.6% 4.0% 4.8%Smaller Reporting Companies 0.8% 1.3% 2.3% 2.3%

MEDIAN % CHANGES BY INDUSTRYAgriculture, Forestry and Fishing 1.8%Construction 1.0%Finance, Insurance & Real Estate 2.7% 3.3% 3.4% 3.5%Manufacturing 3.4% 3.8% 3.5% 3.2%Mining 0.8% 1.9% 2.2% 0.0%Public Administration 0.0%Retail Trade 3.7% 4.7% 5.0% 5.0%Services 2.5% 4.0% 4.8% 3.7%Transportation, Communication, Electric, Gas & Sanitary Services

3.0% 3.3% 1.2% 3.6%

Wholesale Trade 3.9% 6.1% 4.9% 4.5%


The percentage change in audit fees paid by the 6,490 filers can be plotted on a distribution table (below).

The audit fees of over 1,600 filers increased between 10 percent and 20 percent (the tallest bar below), while over 1,400 filers experienced increases of between 0 and 10 percent.

Audit fees decreased for 1,166 filers (18 percent of the 6,490 filings reviewed), compared to 950 filers with decreases last year. However, over 300 filers experienced an increase in fees of more than 100 percent.

PRIMARY AUDIT FIRMA majority of the SEC filings reviewed (3,279 or 50.5 percent of 6,490) indicated one of the “Big 4” accounting firms as their primary auditor.

As was the case last year, EY was mentioned most often (1,040 or 16.0 percent), followed by PwC (759 or 11.7 percent).

In addition to the Big 4, the following firms were also mentioned to round out the top 10 firms indicated in SEC filings reviewed: •BDOUSA •GrantThornton •MaloneBailey •RSMUS •Marcum •CroweHorwath

2012 2013 2014 2015EY 1,170 1,171 1,072 1,040PwC 880 860 801 759Deloitte 807 781 754 746KPMG 723 731 709 734

Total 3,580 3,543 3,336 3,279


DISCLOSURE OF INEFFECTIVE INTERNAL CONTROLSOf the 6,490 SEC filings reviewed for fiscal 2015, almost one-fifth (1,268 or 19.5 percent) indicated they had ineffective internal controls over financial reporting (ICFR). This percentage has been consistent over the past four years.

In each of the past four years, the median increase in audit fees for all SEC filers reviewed was greater than the respective increase in the U.S. Average Producer Price Index for Services.

It should be noted the median increase in audit fees for companies that disclosed ineffective internal controls over financial reporting has been greater than the median increase in audit fees for all SEC filers in each of the past four years.

For fiscal 2015, the median increase in audit fees for companies with ineffective internal controls was almost two percentage points higher. In fiscal 2014, the median increase was three percentage points higher.

SEC FILINGS 2012 2013 2014 2015Effective ICFR 6,556 6,337 5,781 5,222

Ineffective ICFR 1,573 1,548 1,460 1,268

Total Filings Reviewed 8,129 7,885 7,241 6,490

% Ineffective ICFR 19.4% 19.6% 20.2% 19.5%

2012 2013 2014 2015U.S. AVERAGE PRODUCER PRICE INDEX 1.9% 1.6% 1.8% 1.0%

Median Change in Audit Fees 3.0% 3.5% 3.4% 3.2%

Median Change, Effective Controls 2.8% 3.3% 3.1% 3.1%Median Change, Ineffective Controls 4.4% 6.0% 6.4% 5.1%

PAGE / 8 SURVEY RESPONSESPUBLIC COMPANIES

AUDIT FEE INCREASES BY FILING STATUS

Audit fees paid by the 89 public company respondents for their 2015 audits averaged $6.46 million and were roughly proportional to the size of company as measured by market capitalization (Exhibit A) and annual revenue (Exhibit C). The median audit fee was $2.41 million.

Respondents indicated their 2015 audit fees were, on average, 4.5 percent greater than their 2014 fees, with a median increase of 1.6 percent (Exhibits A and C). Average fee changes by size of company ranged from an average decrease of 8.9 percent (median decrease of 7.2 percent) for companies with annual revenue between $500 to $999 million, to an average increase of 18.0 percent (median decrease of 6.0 percent) for companies with revenue less than $5 million.

The U.S. Securities and Exchange Commission (SEC) has divided issuers into four categories for purposes of Exchange Act filings. Rule 12-b under the Exchange Act specifically defines three of the four filer categories:

•Largeacceleratedfilershaveanaggregateworldwidemarketvalueof$700millionormore;

•Acceleratedfilershaveanaggregateworldwidemarketvaluebetween$75and$700million;

•Non-acceleratedfilersareimplicitlydefinedinRule12-b,andhaveapublicfloatoflessthan$75million;and

•Smallerreportingcompanieshaveapublicfloatoflessthan$75million.

Comparing audit fee increases by market capitalization, smaller reporting companies experienced the greatest average percentage increase, 13.6 percent, with a median increase of 8.8 percent. While the average increase of 13.6 percent is based on only seven responses, two of the reasons provided for significant increases include:

•SOX404brequirementwastriggered;and

•Wehadsomecomplexaccountingtransactions,suchasderivatives.

All Public Smaller Reporting Non-Accelerated Accelerated Filers Large Accelerated

Responses 89 7 4 15 63Average $6,455,626 $290,473 $874,653 $974,562 $8,800,006% Increase 4.5% 13.6% 0.9% 7.7% 2.9%

Median $2,410,000 $198,720 $672,366 $643,985 $4,600,000% Increase 1.6% 8.8% (1.3%) 4.6% 1.4%

http://media.mofo.com/files/uploads/Images/FAQ-Periodic-Reporting-Requirements-for-US-Issuers-Overview.pdf


AUDIT HOURS BY FILING STATUS

Survey respondents were asked for the number of hours billed for their 2015 audit. Less than half of the public company respondents, or only 38, provided the number of hours billed (Exhibit B). Most of these (30) were large accelerated filers.

The average number of hours billed to large accelerated filers responding to the survey, based on the hours they reported, was 27,739. Dividing the average fees by the average number of hours yields a derived average of $268/hour. The median number of hours reported by the large accelerated filers was 16,000, which yields a median hourly rate of $202.

REASONS FOR AUDIT FEE INCREASES

This year, 51 of the 89 public companies (57 percent) responding to the survey indicated they experienced an increase in audit fees (Exhibit D). About one-third (31 percent) of these respondents checked “acquisition” as a reason for an audit fee increase (Exhibit D). One-fifth (22 percent) checked “review of manual controls from PCAOB inspections.”

In the 2015 Audit Fee Report, in contrast, the primary reason for audit fee increases was “acquisition” (46 percent), closely followed by “PCAOB issues” (39 percent).


Responses 38 1 1 6 30Average Fees $6,037,441 $641,000 $450,135 $595,605 $7,491,933Average Hours 22,539 2,000 1,500 3,463 27,739Per Hour $268 $321 $300 $172 $270

Median Fees $2,544,133 $641,000 $450,135 $572,064 $3,234,150Median Hours 13,200 2,000 1,500 2.900 16,000Per Hour $193 $321 $300 $191 $202


Responses 51 4 2 10 35Negotiations with Primary Auditor 43% 0% 0% 80% 40%

Acquisition 31 0 100 10 31Review of Controls (PCAOB) 22 25 100 0 23

Inflation 18 0 0 40 14Other 35 75 50 30 31


Other reasons cited in this year’s findings included:

•Recentrestatementofpriorperiodfinancialstatementsandexistingmaterialweaknesses;

•Minorcontroldeficiencyremediationworkandadditionalsubstantivetesting;

•Anydeviationfromtestincursadditionalfees;

•Recentlywentpublic,puttingSOXinplace;

•Additionalstatutoryauditsrequiredininternationallocationsandsystemimplementation;

•Auditor’snewSOXstandardsrelatedtointerpretationofPCAOBrulings;and

•Auditor’snewapproacharoundriskassessment.

Acquisition, cited by nearly a third of respondents, was cited as a key factor behind audit fee increases – perhaps not surprising given the record-setting $4.3 trillion globally (according to Dealogic) in 2015 mergers and acquisitions.

“When a company does a business acquisition or a significant contract, they need controls in place that they can leverage within their environment to make sure they’re documenting how they recorded the transaction appropriately, particularly with the new revenue recognition standard and the leasing standard,” says Steven Stensrud, manufacturing and distribution team leader and assurance professional practice liaison with Baker Tilly Virchow Krause, LLP.

“Companies with significant transactions need to make sure there’s not a scope change on audit fees. They should collaborate with their auditors about potential transactions so they’re scoping that appropriately in the audit planning stage.”

The review of internal controls, especially management review controls (MRCs) by external auditors, continues to be another factor leading to increases. Eric Miles, partner in charge of the Business Risk Management Practice at Moss Adams LLP, says the judgment required in developing and testing MRCs makes them more time-consuming than automated controls.

“In some instances, companies want to reduce the number of key controls, so they replace a number of automated controls that are black and white in nature, and easy to test, with management review controls that are much harder for an auditor to test,” Miles says. “On one hand, they’re reduced the number of controls, but they’ve increased the amount of management time and auditor time that’s needed to review those controls.”

Concerns about the review of internal controls and their effectiveness continue to receive attention from registrants, external auditors and regulators, says Chris Jeffrey, leader of the Midwest Risk and Internal Audit practice at Baker Tilly.

“There are more expectations that the regulatory environment is imposing on companies and external auditors,” he says. “In the past couple of years, we’ve had COSO 2013 and other standards being adopted, and there’s an expectation that auditors will look at how companies are doing with their adoption areas.

“We’re also getting better at understanding what the PCOAB and SEC are expecting from an audit documentation perspective, which has added time to an audit. The cost of an audit is really a function of time, and if we’re adding time to the audit, we’re likely adding some cost.”


The ever-quickening speed at which companies are being forced to act in today’s business climate can also contribute to higher fees, says Jason Lawson, an audit partner at Moss Adams LLP.

“As more companies become service-based in the U.S., the pace of change — whether that’s technology or the products or services they offer — increases constantly,” Lawson says. “That in turn causes changes in the relevant cycles, the company’s goals, and the relevant areas to test as the pace of change quickens in a service economy.”

REASONS FOR AUDIT FEE DECREASESLess than half of the public companies responding to the survey (38, or 43 percent of the 89 responding public companies ) indicated their audit fees were reduced. The primary reason for a decrease in audit fees was “negotiation with primary auditor,” which was cited by 26 percent of public company respondents (Exhibit E).

Other reasons checked by respondents from companies that had experienced reduced audit fees would not appear to be logical reasons for reductions, including:

•Inflation–21percent;

•Acquisition–18percent;and

•ReviewofmanualcontrolsfromPCAOBinspections–18percent.

Perhaps their audit fees would have been even less were it not for these reasons.

INITIATIVES TO MITIGATE INCREASES IN AUDIT FEES

We asked “which of the following has your company used to mitigate audit fees?” and provided a number of options (Exhibit F). The most frequently checked option was “increased our audit preparedness” (56 percent). This was followed closely by “reviewed our audit hours and fees and negotiated with our auditors” (53 percent).

Interestingly, while 43 percent indicated that they “improved our internal controls,” only one-fifth 19 percent of the respondents checked “increased automation,” possibly because their processes may have already been automated effectively.

All Public

Smaller Reporting

Non- Accelerated

Accelerated Filers

Large Accelerated

Responses 89 7 4 15 63Increased our audit preparedness 56% 57% 100% 53% 54%Negotiated with auditors 53 57 50 60 51Improved ourinternal controls 43 14 25 60 43

Identified areas for improvement 39 0 50 20 48Increased automation 19 14 25 7 22


PRIMARY AUDIT FIRM

Most of the public company respondents (76 companies, or 85 percent) reported they used one of the Big 4 firms as their primary auditor. EY was mentioned most often (25), followed by PwC (22). Grant Thornton, BDO and RSM were also mentioned.

PCAOB QUESTIONSThe primary reason cited for audit fee increases in last year’s survey was “acquisition” (46 percent), closely followed by “PCAOB issues” (39 percent). This year, we asked a series of questions about the influence of the PCAOB (Exhibit H) on audit fees.

Here are the percentages of positive responses to these questions:

•“HasyourauditorrequestedthatyoumakechangestoyourcontrolsasaresultofPCAOBrequirementsorinspection

feedback?” Yes – 40 percent

•“HasyourauditorrequestedthatyoumakechangestoyourcontrolsdocumentationasaresultofPCAOBfeedback?”

Yes – 52 percent

•“DidthePCAOBfindingsresultinarestatementofyourfinancialstatements?”

Yes – 0 percent; No – 54 percent; not applicable or don’t know – 46 percent.

•“DidthePCAOBfindingsresultinachangeinyourauditor’sopinion?”

Yes – 0 percent; No – 53 percent; not applicable or don’t know – 47 percent.

All Public

Smaller Reporting

Non- Accelerated

Accelerated Filers

Large Accelerated

Responses 89 7 4 15 63

EY 25 0 2 7 16PwC 22 1 0 0 21Deloitte 16 0 0 0 16KPMG 13 0 1 3 9Grant Thornton 4 1 0 2 1BDO 3 0 0 3 0RSM 2 1 1 0 0Other 4 4 0 0 0


SARBANES-OXLEY QUESTIONSWHO PERFORMS YOUR SARBANES-OXLEY SECTION 404 TESTING?

One-third of the public company respondents indicated their company’s Sarbanes-Oxley Section 404 testing was done by internal audit (Exhibit I), while almost half of accelerated filers and smaller reporting companies said this activity was outsourced.

HOW WOULD YOU DESCRIBE YOUR COMPANY’S COMPLIANCE WITH SECTION 404?

One third of the respondents said Section 404 compliance has resulted in better internal control, and is worth the added expense. This description was the most frequently selected response, and was indicated by an even greater percentage of smaller reporting companies (43 percent) and non-accelerated filers (50 percent).

Less than 10 percent of respondents selected either “no increase in internal control” (7 percent) or “cost of compliance far exceeds any additional control” (8 percent). Almost one-fourth of the respondents (23 percent) said they did not know.

All Public

Smaller Reporting

Non- Accelerated

Accelerated Filers

Large Accelerated


Internal Audit 34% 0% 75% 27% 37%Outsourced 21 43 25 47 13Finance 18 43 0 6 19Management 7 0 0 0 9Don’t Know 20 14 0 20 22

All Public

Smaller Reporting

Non- Accelerated

Accelerated Filers

Large Accelerated


Better internal control, worth added expense 33% 43% 50% 20% 33%

Better internal control, not worth expense 30 29 0 53 27

No increase in control 7 14 25 0 7

Cost excessive 8 0 25 7 8

Don’t Know 22 14 0 20 25


HAS YOUR COMPANY EXPERIENCED AN INCREASE OR A DECREASE IN ITS COST OF COMPLIANCE WITH SECTION 404 WITHIN THE PAST THREE YEARS?

Almost half of all public company respondents (48 percent) indicated an increase in its cost of compliance with Section 404 within the past three years (Exhibit I), and this percentage was roughly consistent among all groups. Less than 10 percent indicated a decrease, almost one-fourth indicated no change, and the rest said they did not know.

We then asked those who had experienced an increase to indicate why, selecting from a number of potential reasons. The reason selected most frequently was “regulatory requirements, including COSO 2013” (61 percent). Other common reasons included:

•ImplementedanewITsystem(40percent);

•Growthoforganization/staff(40percent);and

•PCAOBinspectionfindingsandrelatedPCAOBissues(33percent).

All Public

Smaller Reporting

Non- Accelerated

Accelerated Filers

Large Accelerated


Increase 48% 43% 50% 53% 48%No change 24 43 25 27 21Decrease 7 0 25 0 7Don’t Know 21 14 0 20 24

PAGE / 15 SURVEY RESPONSESPRIVATELY HELD COMPANIES

AUDIT FEE INCREASESAudit fees paid by the 126 privately held company respondents for their 2015 audits averaged $258,935 and were proportional to the size of company as measured by annual revenue (Exhibit C). The median audit fee was $102,059.

Respondents indicated their 2015 audit fees were, on average, 6.1 percent greater than their 2014 fees, with a median increase of 2.9 percent (Exhibits A and C). Average fee changes by size of company ranged from an average decrease of 3.5 percent (median increase of 2.2 percent) for companies with annual revenue of between $500 to $999 million to an average increase of 18.4 percent for the two companies with revenue less than $5 million.

Survey respondents were asked for the number of hours billed for their 2015 audit. Less than one-third of the private company respondents, or only 39, provided the number of hours billed (Exhibit B). The average number of hours billed, based on those responding, was 1,898. Dividing the average fees by the average number of hours yields a derived average of $184/hour. The median number of hours reported was 1,000, which yields a median hourly rate of $195.

REASONS FOR AUDIT FEE INCREASES OR DECREASESThis year, 73 of the 126 privately held companies (58 percent) responding to the survey indicated they experienced an increase in audit fees (Exhibit D). As in 2015, inflation was the primary reason (34 percent) for audit fee increases, followed by “acquisition” (22 percent).

As with public company respondents, one-third of the private company respondents who experienced fee increases indicated they did negotiate those fees with their auditor. Other reasons provided for audit fee increases included: •Saleandpurchasebyprivateequityrequiredtwoaudits; •Auditorsaidfirmrequiredadditionalproceduresatallclients;and •Thiswasafirst-timeaudit,switchingfromareviewengagement.

Conversely, 53 of the responding private companies (42 percent) indicated their audit fees were reduced. The primary reason for a decrease in audit fees was “negotiation with primary auditor” (44 percent ) (Exhibit E).

INITIATIVES TO MITIGATE INCREASES IN AUDIT FEESWe asked “which of the following has your company used to mitigate audit fees?” and provided a number of options (Exhibit F). As with public company respondents, the most frequently checked option was “increased our audit preparedness” (78 percent). Other frequently-mentioned reasons included: •Improvedourinternalcontrols(50percent) •Reviewedourcurrentauditfocustoidentifyareasforimprovement(45percent); •Reviewedouraudithoursandfeesandnegotiatedwithourauditors”(41percent); •Increasedstaff’sauditskillset(31percent);and •Increasedautomation(29percent).

PRIMARY AUDIT FIRMRSM was the most frequently mentioned audit firm with 15 responses, followed by PwC (13). The “Other” category had 47 responses (37 percent of 126), which included various regional firms.

PAGE / 16 SURVEY RESPONSESNON-PROFIT ORGANIZATIONS

AUDIT FEE INCREASESAudit fees paid by the 30 non-profit organizations responding to the survey averaged $159,844, and, with one exception, were proportional to the size of the organization as measured by annual revenue (Exhibit C). The one exception was an organization with less than $5 million in annual revenue that indicated new GASB accounting standards were responsible for its above-average increase in audit fees. The median audit fee was $84,625.

Respondents indicated their 2015 audit fees were, on average, 6.2 percent greater than their 2014 fees, with a median increase of 2.3 percent (Exhibits A and C). Average fee increases by size of company ranged from an increase of 2.4 percent for the one organization with more than $5 billion in annual revenue, to 12.5 percent (no median increase) for organizations with annual revenue between $5 to $24 million.

Survey respondents were asked for the number of hours billed for their 2015 audit. Only seven organizations provided the number of hours billed (Exhibit B). The average number of hours billed, based on those responding, was 1,935. Dividing the average fees by the average number of hours yields a derived average of $197/hour. The median number of hours reported was 1,400, which yields a median hourly rate of $173.

REASONS FOR AUDIT FEE INCREASES OR DECREASESThis year, 20 of 30 non-profit organizations (67 percent) responding to the survey indicated they experienced increases in audit fees (Exhibit D). As in 2015, inflation was the primary reason (45 percent) for audit fee increases.

Conversely, 10 (or 33 percent) of the 30 organizations indicated their audit fees were reduced. While 80 percent of the respondents did not provide a reason, 20 percent indicated “turnover in staff.”

INITIATIVES TO MITIGATE INCREASES IN AUDIT FEESWe asked “which of the following has your company used to mitigate audit fees?” and provided a number of options (Exhibit F). As with private company respondents, the most frequently checked option was “increased our audit preparedness” (73 percent). Other frequently mentioned reasons included:

•Improvedourinternalcontrols(53percent);

•Increasedautomation(53percent);

•Increasedstaff’sauditskillset(40percent);and

•Reviewedourcurrentauditfocustoidentifyareasforimprovement(37percent).

PRIMARY AUDIT FIRMCohn Reznick was the most frequently mentioned audit firm with 4 responses, followed by BKD with 3 responses. The “Other”

category had 9 responses (30 percent of 9), which included various regional firms.

PAGE / 17

EXHIBIT A2015 AUDIT FEES BY FILING STATUS

Copyright 2016 Financial Executives Research Foundation (FERF) www.ferf.org. No part may be reprinted or distributed without approval from FERF.

Small Reporting

Companies

Non- Accelerated

$75 to $699

Million

LargeOver $700

Million

TotalPublic Private Non-Profit

Survey Responses 7 4 15 63 89 126 30

Average Audit Fees $290,473 $874,653 $974,562 $8,800,006 $6,455,626 $258,935 $159,844

% Increase from Prior Years 13.6% 0.9% 7.7% 2.9% 4.5% 6.1% 6.2%

Median Audit Fees $198,720 $672,368 $643,985 $4,600,000 $2,410,000 $102,059 $84,625

% Increase from Prior Years 8.8% -1.3% 4.6% 1.4% 1.6% 2.9% 2.3%

SEC Filers 2,423 641 1,422 2,004 6,490

Average Audit Fees $200,268 $2,331,070 $995,755 $4,190,080 $1,817,003

% Increase from Prior Years 33.4% 130.9% 16.7% 11.2% 32.5%

Median Audit Fees $63,282 $819,881 $630,750 $2,186,120 $522,205

% Increase from Prior Years 2.3% 4.8% 3.0% 3.8% 3.2%

ACCELERATED

PAGE / 18

EXHIBIT B2015 AUDIT HOURS BY FILING STATUS


Small Reporting

Companies

Non- Accelerated

$75 to $699

Million

LargeOver $700

Million

TotalPublic Private Non-Profit


Average Audit Fees* $641,000 $450,135 $595,605 $7,491,933 $6,037,441 $349,784 $380,605

Average Audit Hours 2,000 1,500 3,493 27,739 22,539 1,898 1,935

Average $ Per Hour $321 $300 $172 $270 $268 $184 $197

Median Audit Fees* $641,000 $450,135 $572064 $3,234,150 $2,544,133 $195,000 $242,000

Median Audit Hours 2,000 1,500 2,990 16,000 13,200 1,000 1,400

Median $ Per Hour $321 $300 $191 $202 $193 $195 $173

ACCELERATED

* Only of those that provided hours

PAGE / 19

EXHIBIT C2015 AUDIT FEES BY SALES REVENUE


SEC FILERS

Aver

age

All R

espo

nses

No

Repo

rted

Rev

enue

Less

than

$5

Mill

ion

$5 to

$24

Mill

ion

$25

to $

99 M

illio

n

$100

to $

499

Mill

ion

$500

to $

999

Mill

ion

Number of Filers 6,490 3 1,923 568 764 1,073 542

Percentage of Filers 100.0% 0.0% 29.6% 8.8% 11.8% 16.5% 8.4%

Average Audit Fees $1,817,003 $1,905,400 $259,559 $236,931 $423,034 $1,030,555 $1,616,217

% Increase fromPrior Year 32.5% -8.8% 44.2% 24.5% 82.7% 26.3% 8.7%

Average Audit Fees as a % of Revenue 10.38% 1.58% 0.68% 0.34% 0.22%

Median Audit Fees $522,205 $356,200 $42,200 $138,516 $297,478 $807,000 $1,367,875

% Increase from Prior Year -8.0% 3.0% 3.3% 3.0% 3.9% 3.7%

Median Audit Fees as a % of Revenue

3.2% 1.69% 0.92% 0.48% 0.27% 0.18%

PAGE / 20

EXHIBIT C2015 AUDIT FEES BY SALES REVENUE (continued)


SEC FILERS

$1 to

$4.

9 Bi

llion

$5 to

$14

.9 B

illio

n

$15

to $

24.9

Bill

ion

$25

to $

49.9

Bill

ion

Mor

e th

an $

50 B

illio

n

Number of Filers 1,039 370 91 64 53

Percentage of Filers 16.0% 5.7% 1.4% 1.0% 0.8%

Average Audit Fees $3,337,061 $6,227,998 $9,773,324 $12,876,846 $25,714,980

% Increase fromPrior Year 10.8% 8.1% 7.5% 8.9% 13.9%


Median Audit Fees $2,458,528 $5,100,000 $8,271,000 $9,000,000 $17,977,000

% Increase from Prior Year 3.9% 2.5% 3.5% 1.7% 2.6%

Median Audit Fees as a % of Revenue 0.08% 0.05% 0.04% 0.02% 0.03%

PAGE / 21



PUBLIC

Aver

age

All R

espo

nses

Less

than

$5

Mill

ion

$5 to

$24

Mill

ion

$25

to $

99 M

illio

n

$100

to $

499

Mill

ion

$500

to $

999

Mill

ion

Number of Responses 89 4 3 6 13 5

Percentage of Responses 100% 4% 3% 7% 15% 6%

Average Audit Fees $6,455,626 $376,582 $419,823 $360,042 $739,529 $1,576,712

% Increase fromPrior Year 4.5% 18.0% 16.1% 14.1% 2.2% -8.9%


Median Audit Fees $2,410,000 $349,721 $419,750 $282,958 $668,144 $1,967,784

% Increase from Prior Year 1.6% -6.0% 8.8% 8.0% 1.6% -7.2%


PAGE / 22



PUBLIC

$1 to

$4.

9 Bi

llion

$5 to

$14

.9 B

illio

n

$15

to $

24.9

Bill

ion

$25

to $

49.9

Bill

ion

Mor

e th

an $

50 B

illio

n

Number ofResponses 23 21 6 3 5

Percentage of Responses 26% 23% 7% 3% 6%

Average Audit Fees $3,337,749 $7,674,667 $9,407,500 $19,991,667 $39,554,200

% Increase fromPrior Year 7.1% 2.1% 3.4% 1.0% -3.3%


Median Audit Fees $2,825,000 $6,341,998 $9,522,500 $21,844,000 $34,600,000

% Increase from Prior Year 6.9% 0.9% 2.8% 2.8% -1.1%


PAGE / 23


PRIVATE

Aver

age

All R

espo

nses

Less

than

$5

Mill

ion

$5 to

$24

Mill

ion

$25

to $

99 M

illio

n

$100

to $

499

Mill

ion

$500

to $

999

Mill

ion

$1 to

$4.

9 Bi

llion

$5 to

$14

.9 B

illio

n

Number of Responses 126 2 12 44 44 11 10 3

Percentage of Responses 100% 2% 10% 35% 35% 9% 8% 3%

Average Audit Fees $258,935 $25,841 $68,983 $82,723 $215,086 $629,872 $795,821 $1,547,998

% Increase fromPrior Year 6.1% 18.4% 6.0% 10.3% 5.1% -3.5% 2.4% 0.6%

Average Audit Fees as a % of Revenue 1.03% 0.46% 0.13% 0.07% 0.08% 0.03% 0.02%

Median Audit Fees $102,059 $25,841 $37,000 $53,250 $128,500 $680,000 $717,500 $1,547,998

% Increase from Prior Year 2.9% 18.4% 4.0% 2.9% 2.6% 2.2% 3.1% 0.6%

Median Audit Fees as a % of Revenue 1.03% 0.25% 0.09% 0.04% 0.09% 0.02% 0.02%

NON-PROFIT

Aver

age

All R

espo

nses

Less

than

$5

Mill

ion

$5 to

$24

Mill

ion

$25

to $

99 M

illio

n

$100

to $

499

Mill

ion

$500

to $

999

Mill

ion

$1 to

$4.

9 Bi

llion

$5 to

$14

.9 B

illio

n

Number of Responses 30 1 8 13 5 2 0 1

Percentage of Responses 100% 3% 27% 43% 17% 7% 0% 3%

Average Audit Fees $159,844 $185,000 $51,169 $88,344 $166,480 $437,500 $1,345,000

PAGE / 24

EXHIBIT DREASONS FOR INCREASES IN AUDIT FEES

Smal

l Rep

ortin

gCo

mpa

nies

Non

-Acc

eler

ated

$75

to

$699

Mill

ion

Larg

e O

ver

$700

Mill

ion

Tota

l Pub

lic

Priv

ate

Non

-Pro

fit

Responses Indicating Increases in Audit Fees 4 2 10 35 51 73 20

Negotiation with Primary Auditor

0.0% 0.0% 80.0% 40.0% 43.1% 34.3% 20.0%

Changed Independent Auditor 25.0% 0.0% 30.0% 0.0% 2.0% 5.5% 5.0%

Acquisition 0.0% 100.0% 10.0% 31.4% 31.4% 21.9% 0.0%

Divestiture 25.0% 0.0% 0.0% 5.7% 7.8% 1.4% 0.0%

Centralized Operations 0.0% 0.0% 0.0% 14.3% 9.8% 1.4% 10.0%

Inflation 0.0% 0.0% 40.0% 14.3% 17.7% 34.3% 45.0%

New FASB Standards 0.0% 50.0% 20.0% 8.6% 11.8% 8.2% 0.0%

New GASB Standards 0.0% 0.0% 0.0% 2.9% 2.0% 0.0% 5.0%

Focus on Revenue Recognition 0.0% 0.0% 0.0% 14.3% 9.8% 8.2% 0.0%

Foreign Currency Adjustments 25.0% 0.0% 10.0% 2.9% 5.9% 0.0% 0.0%

Review of Manual Controls from PCAOB Inspections

25.0% 100.0% 0.0% 22.9% 21.6% 2.7% 0.0%

Review of Prior Year Work Papers from PCAOB Inspections

0.0% 50.0% 0.0% 5.7% 5.9% 1.4% 0.0%

New SEC Reporting Requirements

25.0% 0.0% 100.0% 8.6% 9.8% 0.0% 0.0%

New COSO Framework 0.0% 0.0% 20.0% 17.1% 15.7% 1.4% 5.0%

XBRL Review 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Turnover of Key Audit Firm Team Members 0.0% 50.0% 10.0% 11.4% 11.8% 4.1% 5.0%

ACCELERATED


PAGE / 25

EXHIBIT DREASONS FOR INCREASES IN AUDIT FEES (continued)

Smal

l Rep

ortin

gCo

mpa

nies

Non

-Acc

eler

ated

$75

to

$699

Mill

ion

Larg

e O

ver

$700

Mill

ion

Tota

l Pub

lic

Priv

ate

Non

-Pro

fit

Additional Review as a Results of SEC Inquiry 25.0% 0.0% 0.0% 8.6% 7.8% 0.0% 0.0%

Turnover in Staff 50.0% 0.0% 10.0% 2.9% 7.8% 2.7% 15.0%

OMB A-133 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 10.0%

Yellow Book Audits 0.0% 0.0% 0.0% 0.0% 0.0% 1.4% 0.0%

No Reasons Given 0.0% 0.0% 0.0% 17.1% 11.8% 13.7% 10.0%

Other 75.0% 50.0% 30.0% 31.4% 35.3% 30.1% 15.0%

ACCELERATED


PAGE / 26

EXHIBIT EREASONS FOR DECREASES IN AUDIT FEES

Smal

l Rep

ortin

gCo

mpa

nies

Non

-Acc

eler

ated

$75

to

$699

Mill

ion

Larg

e O

ver

$700

Mill

ion

Tota

l Pub

lic

Priv

ate

Non

-Pro

fit

Responses Indicating Increases in Audit Fees 3 2 5 28 38 53 10

Negotiation with Primary Auditor

0.0% 50.0% 0.0% 32.1% 26.3% 44.2% 0.0%

Changed Independent Auditor 0.0% 50.0% 0.0% 3.4% 5.3% 15.4% 0.0%

Acquisition 0.0% 0.0% 0.0% 25.0% 18.4% 9.6% 0.0%

Divestiture 0.0% 50.0% 0.0% 14.3% 13.2% 7.7% 0.0%

Centralized Operations 0.0% 0.0% 0.0% 10.7% 7.9% 5.8% 0.0%

Inflation 33.3% 0.0% 40.0% 17.9% 21.1% 0.0% 0.0%

New FASB Standards 0.0% 0.0% 0.0% 14.3% 10.5% 0.0% 0.0%

New GASB Standards 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Focus on Revenue Recognition 0.0% 0.0% 40.0% 10.7% 13.2% 0.0% 0.0%

Foreign Currency Adjustments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Review of Manual Controls from PCAOB Inspections

0.0% 0.0% 40.0% 17.9% 18.4% 0.0% 0.0%

Review of Prior Year Work Papers from PCAOB Inspections

0.0% 0.0% 0.0% 3.6% 2.6% 0.0% 0.0%

New SEC Reporting Requirements

0.0% 0.0% 20.0% 3.6% 5.3% 0.0% 0.0%

New COSO Framework 0.0% 0.0% 40.0% 10.7% 13.2% 0.0% 0.0%

XBRL Review 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Turnover of Key Audit Firm Team Members

0.0% 0.0% 0.0% 3.6% 2.6% 0.0% 0.0%

ACCELERATED


PAGE / 27

EXHIBIT EREASONS FOR DECREASES IN AUDIT FEES (continued)

Smal

l Rep

ortin

gCo

mpa

nies

Non

-Acc

eler

ated

$75

to

$699

Mill

ion

Larg

e O

ver

$700

Mill

ion

Tota

l Pub

lic

Priv

ate

Non

-Pro

fit

Additional Review as a Results of SEC Inquiry 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Turnover in Staff 0.0% 0.0% 0.0% 3.6% 2.6% 1.9% 20.0%

OMB A-133 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Yellow Book Audits 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

No Reasons Given 33.3% 0.0% 40.0% 25.0% 23.7% 38.5% 80.0%

Other 33.3% 50.0% 20.0% 21.4% 23.7% 13.5% 30.0%

ACCELERATED


PAGE / 28

EXHIBIT FINITIATIVES TO MITIGATE INCREASES IN AUDIT FEES

Smal

l Rep

ortin

gCo

mpa

nies

Non

-Acc

eler

ated

$75

to

$699

Mill

ion

Larg

e O

ver

$700

Mill

ion

Tota

l Pub

lic

Priv

ate

Non

-Pro

fit


Reviewed our current audit focus to identify areas for improvement

0.0% 50.0% 20.0% 47.6% 39.3% 45.2% 36.7%

Improved our internal controls 14.3% 25.0% 60.0% 42.9% 42.7% 50.0% 53.3%

Centralized our audit footprint 0.0% 25.0% 20.0% 11.1% 12.4% 13.5% 20.0%

Increased automation 14.3% 25.0% 6.7% 22.2% 19.1% 29.4% 53.3%

Increased staff's audit skill set 28.6% 0.0% 6.7% 7.9% 9.0% 31.0% 40.0%

Increased our audit preparedness 57.1% 100.0% 53.3% 54.0% 56.2% 77.8% 73.3%

Reviewed our audit hours and fees and negotiated with our auditors

57.1% 50.0% 60.0% 50.8% 52.8% 40.5% 26.7%

Other 0.0% 0.0% 0.0% 11.1% 7.9% 6.4% 3.3%

ACCELERATED


PAGE / 29

EXHIBIT G2015 PRIMARY AUDIT FIRM

Smal

l Rep

ortin

gCo

mpa

nies

Non

-Acc

eler

ated

$75

to

$699

Mill

ion

Larg

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ver

$700

Mill

ion

Tota

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lic

Priv

ate

Non

-Pro

fit

Tota

ls

Survey Responses 7 4 15 63 89 126 30 245

PwC 1 ---- ---- 21 22 13 1 36

EY ---- 2 7 16 25 9 ---- 34

Deloitte ---- ---- ---- 16 16 9 2 27

KPMG ---- 1 3 9 13 6 2 21

RSM 1 1 ---- ---- 2 15 3 20

Grant Thornton 1 ---- 2 1 4 8 2 14

BDO ---- ---- 3 ---- 3 3 2 8

Moss Adams ---- ---- ---- ---- ---- 5 1 6

BKD ---- ---- ---- ---- ---- 2 3 5

Baker Tilly ---- ---- ---- ---- ---- 4 4

Cohn Reznick ---- ---- ---- ---- ---- 4 4

Crowe Horwath ---- ---- ---- ---- ---- 3 3

Mayer Hoffman McCann ---- ---- ---- ---- ---- 2 1 3

Other 4 ---- ---- ---- 4 47 9 60

TOTAL 7 4 15 63 89 126 30 245

ACCELERATED


PAGE / 30

EXHIBIT HPCAOB QUESTIONS

RESPONSES FROM 89 PUBLICLY-HELD COMPANIES Yes

No

Not

App

licab

le

Don’

t Kno

w

If your auditor was subjected to PCAOB oversight review, were the comments shared with you? 40.4% 7.9% 31.5% 20.2%

Has your auditor requested that you make changes to your controls as a result of PCAOB requirements or inspection feedback?

48.3% 23.6% 6.7% 21.4%

Has your auditor requested that you make changes to your controls documentation as a results of PCAOB feedback? 51.7% 15.7% 9.0% 23.6%

Did the PCAOB findings result in a restatement of your financial statements? 0.0% 53.9% 24.7% 21.4%

Did the PCAOB findings result in a change in your auditor's opinion? 0.0% 52.8% 25.8% 21.4%


PAGE / 31

EXHIBIT ISARBANES-OXLEY QUESTIONS


Smal

l Rep

ortin

gCo

mpa

nies

Non

-Acc

eler

ated

$75

to

$699

Mill

ion

Larg

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ver

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Mill

ion

Tota

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lic

Survey Responses 7 4 15 63 89

WHO PERFORMS YOUR SARBANES-OXLEY SECTION 404 TESTING?

Internal audit 0.0% 75.0% 26.7% 36.5% 33.7%

Management (decentralized) 0.0% 0.0% 0.0% 9.5% 6.7%

Finance/controllers resources 42.9% 0.0% 6.0% 19.1% 18.0%

Outsourced 42.9% 25.0% 46.7% 12.7% 21.4%

Don't know 14.2% 0.0% 20.0% 22.2% 20.2%

HOW WOULD YOU DESCRIBE YOUR COMPANY’S COMPLIANCE WITH SECTION 404?

Better internal control, worth the added expense 42.8% 50.0% 20.0% 33.3% 32.6%

Better internal control, but not worth the added expense 28.6% 0.0% 53.3% 27.0% 30.3%

No increase in internal control 14.3% 25.0% 0.0% 6.4% 6.7%

Cost of compliance far exceeds any additional control 0.0% 25.0% 6.7% 7.9% 7.9%

Don't know 14.3% 0.0% 20.0% 25.4% 22.5%

ACCELERATED

PAGE / 32


EXHIBIT ISARBANES-OXLEY QUESTIONS (continued)

Smal

l Rep

ortin

gCo

mpa

nies

Non

-Acc

eler

ated

$75

to

$699

Mill

ion

Larg

e O

ver

$700

Mill

ion

Tota

l Pub

lic


HAS YOUR COMPANY EXPERIENCED AN INCREASE OR A DECREASE IN ITS COSTS OF COMPLIANCE WITH SECTION 404 WITHIN THE PAST THREE YEARS?

Increase 42.8% 50.0% 53.3% 47.6% 48.3%

Decrease 0.0% 25.0% 0.0% 8.0% 6.7%

No Change 42.8% 25.0% 26.7% 20.6% 23.6%

Don’t know 14.4% 0.0% 20.0% 23.8% 21.4%


IF YOU ANSWERED “INCREASE,” PLEASE CHECK ALL THE REASONS WHY.

Completed a large acquisition with additional systems 0.0% 50.0% 12.5% 13.3% 14.0%

Implemented a new IT system 33.3% 0.0% 25.0% 46.7% 39.5%

Regulatory requirements, including COSO 2013 33.3% 0.0% 87.5% 60.0% 60.5%

Growth of organization/staff 33.3% 50.0% 37.5% 40.0% 39.5%

Material weakness or significant deficiency 66.7% 0.0% 12.5% 13.3% 16.3%

Cybersecurity threats 0.0% 50.0% 0.0% 6.7% 7.0%

PCAOB inspection findings/related issues 0.0% 50.0% 25.0% 36.7% 32.6%

Other 33.3% 0.0% 0.0% 10.0% 9.3%

ACCELERATED

PAGE / 33 ABOUT THE AUTHOR

WILLIAM M. (BILL) SINNETT is Chief Operating Officer, Research, for Financial Executives Research Foundation, Inc. (FERF), the research affiliate of Financial Executives International (FEI). He also supports FEI’s Committee on Finance & IT (CFIT).

Sinnett joined FEI as Accounting Manager in 1985, and became Manager of Research in 1989. He was promoted to Director of Research in October 2005, Senior Director in October 2011, and Chief Operating Officer in July 2015. Prior to his positions at FEI and FERF, Bill was employed by Carnegie-Mellon University and Mellon Bank in Pittsburgh. He has an M.B.A. from the University of Pittsburgh.

Contact information: Phone: 973.765.1004 Email: [email protected]

mailto:bsinnett%40financialexecutives.org?subject=

WorkivaWorkiva (NYSE:WK) created Wdesk, a cloud-based productivity platform for enterprises to collect, link, report and analyze business data with control and accountability. Thousands of organizations, including over 65 percent of the Fortune 500®, use Wdesk. The platform’s proprietary word processing, spreadsheet and presentation applications are integrated and built upon a data management engine, offering synchronized data, controlled collaboration, granular permissions and a full audit trail. Wdesk helps mitigate enterprise risk, improve productivity and give users confidence to make decisions with real-time data. Workiva employs more than 1,200 people with offices in 16 cities. The company is headquartered in Ames, Iowa.

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FERFFinancial Execut ives Research Foundation (FERF) is the non-profit 501(c)(3) research affiliate of Financial Executives International (FEI). FERF researchers identify key financial issues and develop impartial, timely research reports for FEI members and non-members in a variety of publication formats. FERF relies primarily on voluntary tax-deductible contributions from corporations and individuals. FERF publications can be ordered by logging onto www.ferf.org/reports.

The views set forth in this publication are those of the author and do not necessarily represent those of the FERF Board as a whole, individual trustees, employees or the members of the Research Committee. FERF shall be held harmless against any claims, demands, suits, damages, injuries, costs, or expenses of any kind or nature whatsoever except such liabilities as may result solely from misconduct or improper performance by FERF or any of its representatives.

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