September 16, 2019

Audit Fees By Industry, As Presented By Audit Analytics

Audit Analytics puts together some great data points from time to time, and this latest on audit fees by industry is no exception. Let's take a peek:

In this entry, we investigated the relative audit fees of Russell 3000 companies on a broader industry basis (using the NAICS classification system), looking at audit fees compared to both revenue and assets.

Intuitively, one might expect the largest factor in pricing an audit to be the expected amount of time it will take to complete the job. So, the more complex and labor-intensive the audit, the more expensive it will likely be.

Is this intuition confirmed on an industry level? What do audit fees look like in, for example, the retail industry? Retail audits are typically less complex than financial services jobs. Retail clients do not have complicated revenue transactions. It isn’t common for retail companies to have sophisticated derivative and hedging activities. So we would expect retail companies to have lower-than-average audit fees.

Financial institutions, on the other hand, have exceedingly complex accounting rules for a wide array of financial products – so complex that in some cases they aren’t understood by anyone! Therefore, one would expect the audit of a financial institution to be significantly more expensive than that of a retail client.

In order to test these hypotheses, Audit Analytics performed an analysis of Russell 3000 companies from 2005 to 2012. Using the NAICS codes, we analyzed an industry breakdown of audit fees for these companies.

Chart 1 below shows audits fees as a percentage of total revenue for Russell 3000 companies audited by the Big Four.

The health care spike in 2007 is unexplained, unless someone would care to float a theory?

In comparing audit fees as a percentage of total assets, the chart is even more interesting:

Check out all the insights direct from Audit Analytics here.

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