FTSE 100 audit fees reach new high

Fees paid to auditors by FTSE 100 companies reached £911m in 2019, up from the £892m reported in 2018, according to research by Thomson Reuters. The rise comes as audit firms and corporates have “responded to calls” from regulators to invest more in their business’ audits. The Financial Reporting Council (FRC) has urged auditors to raise prices and invest more time and money into core audit work, to ensure that audits are “carried out to the highest possible standard”. It has also called for the separation of audit practices within the Big Four, which is expected to “add to upward pressure” on audit fees as audit practices look to become “self-supporting” business units. The FRC has instructed the Big Four firms to separate their audit functions from other practice areas by 2024, requesting that they outline their plan to do so by October 2020. It comes as the FRC has shown “concern” that accounting firms may be deliberately undercharging clients by using audit work as a “loss leader”, in a bid to undercut competitors and later cross-sell “more lucrative” tax and consulting services. News of the rising fees also comes as audit firms have increased their investment in technology in a bid to improve the quality of audit work, enabling them to analyse large data sets, quickly identify informational outliers and enhance their ability to identify risks. Last year, the Big Four announced that they would be investing billions of dollars into AI and data analytics products to improve the quality of the services it offers, including audit work. Brian Peccarelli, chief operating officer, customer markets at Thomson Reuters says: “Audit firms have responded to regulatory pressure by making substantial investments in new technologies to ensure that audits are carried out to the highest standard. “Rising audit fees show that FTSE 100 companies and their shareholders clearly believe it’s worth paying extra for quality work. This enables accounting firms to dedicate more time and attention into auditing companies’ accounts, reducing the risk of errors.” He added: “The separation of Big 4 audit practices is going to accelerate that adoption of audit technology as firms look to lower their cost base whilst improving performance. However, a natural desire by corporates to reduce their costs during the current coronavirus economic slowdown may create a challenge to deliver higher quality audits without fees rising too quickly. “With ARGA set to replace the FRC auditors will be further seeking to improve the rigour of their audit work. ARGA will have greater powers than its predecessor, including the ability to make direct changes to companies’ accounts and investigate directors. Firms are keen to show they’ve learnt from previous mistakes.”

FTSE 100 audit fees reach new high

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