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The AAO Weblog covers accounting issues and current events as they relate the practice of investment analysis. All posts prior to September, 2007 are in the public domain, but after September 4, only subscribers to The Analyst's Accounting Observer will see all posts going forward. Only selected, occasional posts will be released to the public domain from September 4 forward.

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2004 Audit Fees: A Different Slant
Location: BlogsAAO Weblog (Public)    
Posted by: Jack Ciesielski 3/28/2005 1:00 PM
The Wall Street Journal ran a story this morning that's sure to make an impression on anyone curious about high fast audit fees will rise in the wake of Sarbanes-Oxley Act compliance. A study of 23 firms in the Dow Jones Industrials - some of the largest companies trading in the stock markets - showed that their audit fees rose about 40% to $533 million. That's sure to make an impression.

But that's on 23 of the largest firms - not exactly the stuff to draw conclusions from about the greater population. So - I wandered into the R.G. Associates data warehouse, poking around for some stuff I knew we had on audit fees. I found an audit fee file we'd started that contained 103 companies not in the Dow Jones Industrials - maybe a fairer sample from which to draw inferences. (Note: it's preliminary data, and not likely to be updated here in the weblog. It's part of a larger project to be made available at a later date to subscribers of The Analyst's Accounting Observer.)

It's a bit mixy to just look at the audit fees alone - there's no clear definition of what firms parse out of it and put into "audit-related" fees. Some firms include quarterly reviews in audit fees, for instance, and some include them in audit-related fees. So, to be on the safe side, we combined them for 2004 and 2003 to get an idea of how much fees have changed in one year.

The change in total audit fees for the 103 non-DJIA companies? 23.3%. (If you looked at the straight audit fee figure alone, it wasn't much different: 24.4%.) A pretty far cry from 40% - but even if it was 40% for all the firms, it would still make sense. If auditing firms have skinnied down their fees for years, making up for it with consulting fees later, and they're now compelled to do more nitty-gritty auditing work - how can you expect them to do it for free? A prickly, viable auditing profession is necessary for the well-being of investors and capital markets, and paying them well for services is one way to ensure their ability to recruit future auditors.

Table below; dollars in millions. Forgive the appearance, but this HTML stuff is taking time to get.






































2004 Audit Fees
2004 Audit-related Fees

Total
% Chg.
2003 Total

Air Products & Chemicals

$3.80
$0.50
$4.30
2.4%
4.20


Alberto-Culver
1.97
0.08
2.06
4.9%
1.96

Apollo Group
0.48
0.06
0.54
45.2%

0.37

Amerisourcebergen
2.11
0.29
2.40

-12.9%
2.76

Applied Materials
2.55
0.13

2.68
94.8%
1.38

Analog Devices
1.53

0.21
1.74
6.8%
1.63

Archer-Daniels-Midland

7.31
0.20
7.51
48.3%
5.07


Agilent Technologies
4.59
0.17
4.76
6.7%
4.46

Andrew
1.78
0.12
1.90
5.9%

1.79

Automatic Data Processing
4.61
3.56
8.17

33.3%
6.13

Autozone
0.62
0.01

0.63
12.5%
0.56

Applera
1.92

0.30
2.22
5.5%
2.10

Becton Dickinson

3.93
0.10
4.03
17.7%
3.42


Best Buy
1.01
0.17
1.18
58.1%
0.75

Biomet
1.19
0.08
1.27
1.6%

1.25

Applied Micro Circuits
0.22
0.10
0.33

-4.7%
0.35

Bmc Software
3.65
0.04

3.68
44.8%
2.54

Brown-Forman
0.99

0.62
1.61
39.2%
1.16

Campbell Soup

2.39
0.12
2.51
26.3%
1.98


Cardinal Health
8.02
2.93
10.94
56.5%
6.99

Ashland
5.32
0.15
5.47
8.0%

5.06

Autodesk
1.65
0.00
1.65

16.0%
1.43

Ciena
0.62
0.14

0.76
5.7%
0.72

Cintas
0.29

0.11
0.40
-32.4%
0.60

Circuit City Stores

0.64
0.40
1.04
14.0%
0.92


Cisco Systems
3.90
6.40
10.30
191.5%
3.54

Clorox