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US audit fees shrinking

In the past decade the ratio of audit fees over revenue of US public companies shrank, according to the latest audit fee report by US research company Audit Analytics.

Audit Fees and Non-Audit Fees; a Eleven Year Trend, looked at the fees paid and disclosed by 2,408 accelerated filers between 2002 and 2012, including large accelerated filers as defined by the US Securitas and Exchange Act.

The report also revealed that non-audit fees which in 2002 represented 50.8% of the total fees paid to independent auditors by the accelerated filers dropped steadily after the introduction the Sarbanes-Oxley Act, which imposed greater independence between auditors and the companies they audit

The amount of non-audit fees paid was falling drastically up to 2005 and by 2012 the percentage leveled off at about 21%.

Ratio audit fees over revenue
According to the report, the cost of audit as a percentage of revenue peaked in 2004 and 2005 when for both years the average amount of audit fees paid per every $1m of revenue was $592.

Followed by three years of decline the ratio of audit fees over revenue experienced a slight increase in 2009, due to a decrease in revenues rather than an increase in fees, and was then followed by another three years of decline.

The research found that for 2012 the ratio of audit fees over revenue was at $472 per every $1m of revenue.

This means that the 2012 average audit fee was at the lowest since the implementation of Section 404 of the Sarbanes Oxley Act of 2002 (SOX 404) in 2004.

SOX 404 requires each annual report to contain an internal control report that acknowledges the management's responsibility to maintain adequate internal controls, identifies the framework used to evaluate the effectiveness of the internal controls over financial reporting, and provides an assessment of the effectiveness of these internal controls as of the end of the fiscal year.

It appears that additional requirements of SOX404 and other market forces have had little impact on audit fees, which appear to be steadily decreasing for US public companies.

Ratio of non-audit fees over revenue
The report also revealed that during the eleven years under review, accelerated filers paid the second lowest amount of non-audit fees to auditors as a percentage of revenue during 2012.

In 2002, the average amount of non-audit fees paid per every $1m in revenue was $387. This figure declined substantially for four years and in 2006 reached $146.

From 2006 to 2012 the cost of non-audit fees as a percentage of revenue leveled off with an overall gradual decline.

The 2011 figure was the lowest value calculated for the eleven years under review to $132 and in 2012 the value rose by $2 to $134.

Related link:

Audit Analytics

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