Revenue Recognition, Leasing Rule Changes Boost Audit Fees
- Fees increase 2.5 percent for 2017 audit cycle
- Accounting changes, automation, audit inspections behind increase: survey
Major changes in accounting rules for revenue recognition and leases have pushed up audit fees for publicly traded companies.
Preparations to automate accounting work also contributed to the 2.5 percent median increase in audit fees, according to the Financial Education and Research Foundation, which is an affiliate of Financial Executives International.
The foundation’s report looked at fees for the 2017 audit cycle. In comparison, fees rose just 1.3 percent in 2016.
Both revenue recognition and lease accounting changes required a significant amount of work with the auditor to ensure that companies followed the new accounting standards, and to determine how those changes could impact the financial statements, said Chris Westfall, vice president of content strategy at FEI and the head of research at the foundation.
In a survey, preparers told the foundation that accounting changes have increased fees across the board, Westfall told Bloomberg Tax.
Companies adopted new accounting rules for revenue from contracts with customers in 2018. Beginning in 2019, companies will for the first time report all lease liabilities and assets on their balance sheets.
Preparing for the revenue and leasing rule changes required months of work for accounting departments and cost companies hundreds of thousands of dollars.
Automation also has been driving up the cost of an audit in the short-term as companies work with their auditor to expand the use of robotics process automation tools to areas like audit testing, Westfall said.
“Preparers are making the bet now on automation for pay-off later,” he said.
Such tools ultimately will lead to more efficient audits, said Jeff Burgess, national managing partner of audit services for Grant Thornton LLP.
“We’re on the cusp of that right now,” Burgess told Bloomberg Tax. “Our clients, just like we are, are spending lot of time trying to determine how best to employ and integrate these new technologies into their business.”
Mergers and acquisitions also contributed to the rise in audit fees, along with Public Company Accounting Oversight Board inspections of auditors—costs that trickle down to preparers, according to the foundation.
“We’re not trying to drive up the cost of an audit,” said the PCAOB’s division of inspections director George Botic in remarks at the American Institute of CPAs’ annual SEC-PCAOB conference Dec. 12.
“Ensuring that high quality audit, there’s a cost to it,” Botic said.
To contact the reporter on this story: Amanda Iacone in Washington at firstname.lastname@example.org
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This article was originally published in Bloomberg Tax’s Financial Accounting Resource Center. Rely on expert practitioners for practical guidance and real-world approaches to complex accounting issues.