External Audit Fees Likely to Increase for Many Companies This Year

Due to inflationary pressures, COVID-19 impacts, and acquisitions and divestitures, external audit fees are expected to increase at many organizations this year, a new survey finds.

While the survey, conducted by Gartner, found that 62 percent of companies said they expect their external audit fees to increase this year, it also indicated some ways to mitigate the rise in costs, including negotiation and automating internal controls.

“With audit fees increasing significantly, finance leaders should take note that organizations with higher levels of internal control automation saw substantially lower external audit fees on average,” said Ashwani Gupta, director in the Gartner Finance practice. “The biggest decreases were seen in organizations using between 1 to 50 controls, suggesting that getting internal control automation started has potential cost benefits when it comes to audit fees.”

Audit fee increases in 2020 were led by the banking and insurance sectors, with 69 percent of respondents in each category reporting increases. Financial services companies have more complex accounting processes and financial reporting exposures requiring higher external auditor hours. Insurance companies also have some of the highest number of internal controls relative to companies in other industries. The technology and telecom sector was the least impacted by rising fees, with just 41 percent of respondents reporting increases in 2020.

Organizations that automate at least 25 percent of their controls paid 27 percent lower audit fees on average compared to organizations that do not. Along with reducing audit costs, internal controls automation also helps reduce financial reporting and audit risks.

While internal control automation is a critical component in helping to reduce audit costs, negotiation is still an effective method for organizations to save money, the report finds. According to the survey, 45 percent of organizations that attempted to negotiate said their fees decreased by more than 6 percent, while half were able to decrease their fees by between 3 and 6 percent.

The survey polled 166 publicly traded and privately held external audit firm clients across industries in March-April of 2021, ranging from organizations with revenue above $10 billion to those with revenue under $500 million.

The Gartner survey could lead to a concerted effort from organizations to automate as many of their internal controls as possible. The combination of internal controls automation and negotiation is a surefire way for organizations to minimize external audit expenses, says Gartner.