Audit Analytics recently took a look at the audit fees paid by S&P 500 companies – and to say that they vary widely is a huge understatement. The average audit fees paid by S&P 500 companies were $13.0 million in 2018. Median fees were $8.3 million, with the lower quartile cut-off at $4.6 million & the upper quartile cut-off at $14.7 million. But what’s really eye-popping is the fee range – audit fees paid by the S&P 500 ranged from $800,000 to $133.3 million.
That degree of variation in audit fees is interesting, but so is this nugget about non-audit fees:
Roughly 9.5% of S&P 500 companies had non-audit fees greater than 25% of total fees in 2018. While high non-audit fees exclusively are not a red flag, they can serve as an indicator for investors and other users of financial statements to review what factors are contributing to the fees in each disclosed fee category and potentially look closer at services that have been characterized as non-audit work.
As Audit Analytics notes, the size of non-audit fees that auditors receive may raise concerns. Here’s an excerpt from a NYT article on the topic:
Most recently, the Securities and Exchange Commission issued a statement cautioning accounting firms on the provision of consulting services to their auditing clients. The commission, which did not challenge any specific services in its June 15 “interpretive release,” said its purpose was “to reinforce the sensitivity of corporate‐audit committees and corporate managers as well as accounting firms to the need for preserving independent audits.” Apparently, the commission is concerned because it fears that an accounting firm’s interest in keeping — or obtaining — a company as a consulting client may erode the auditor’s independence.
I guess I probably should have mentioned that this NYT article was published in 1979. The rules are tighter now – but after more than 40 years, it seems like the music may have changed but the song remains the same.
-John Jenkins, TheCorporateCounsel.net February 11, 2020