I have a client who owns a group of four companies described below.
Company A.
Holding company.
No bank account, no transactions.
Company B.
Full subsidiary of company A.
BS Total £6.75m.
Turnover £400k
Company C
Full subsidiary of company B
BS Total £15m
Turnover £850k
Company D
Full subsidiary of company A
BS Total £30k
Turnover £65k
I am contracted to provide the full finance function including the preparation of their stat accounts. The audits are contracted out seperately and the auditor's fee quotes seem excessive.
I appreciate that audit costs are variable and I don't expect anyone to be able to tell me what these should be (although some pointers would be welcome). What concerns me is the inclusion in their quotes of accounts prep fees as well as audit fees, despite the fact that I'm providing accurate accounts in VT and clear/thorough working papers. I have a good working relationship with the auditors and my ability nor the quality of my work is in question.
While I understand the need for disclosure checklists and 'full' compliance I can't see how transposing data from one set of accounts software to another can give rise to accounts prep fees; surely this should fall under an audit fee? Are auditors always reluctant to work with accounts they didn't prepare and is there good reason for this, or is just a case of fee building?
My other concern is the amount of time and effort required by me to complete their audit. I took over the client just before the audits were undertaken last year and found I was given a great deal of leg work which in hindsight I think should have been the auditors responsibility. How should the workload be split down between client / auditor when it comes to preparing an audit file?
Thanks and apologies for my inexperience.
Replies (25)
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it is impossible to tell without some idea of the
number and nature of the transactions but i suspect that it aint going to be under £10k in total
thats not unreasonale
advise your clients to haggle, the audit work aint going to take that long, i suppose consols are being completed - if still unhappy get another quote. does the quote also include tax fees - personally i advise my bigger cliebnts to separate
paying for accounts prep.
When I was a partner in a registered audit practice we always charged for preparing accounts and actively discouraged clients from employing anybody to prepare accounts prior to us receiving them.
I think you should try and strike up an agreement with a firm of registered auditors and agree who does what to avoid this double charging.
If you're in London and it's a decent sized firm I'd have thought £22k was reasonable: Investment property is not nice to audit, and I take it there's lots of inter-company charges going through?
The big killer on audit recoverability is frequently completion of financial statements, especially as in the big firms many staff aren't actually used to preparing them! However, agreeing and checking changes becomes incredibly time consuming (and therefore expensive). If you are sure that your financial statements are that good, then I would suggest you propose to the audit firm they knock-off the financial statement preparation fee, but charge £250 (or so) per set they review and require changes on.
As to workpapers, etc - the actual workpapers should be prepared by them, but what sort of thing are you talking about that you're creating?
Why is investment property difficult to audit?
@The Limey
You know what you paid for it
You know what its worth (valuation).
You can verify bank loans.
You know what the income stream should be.
We are registered auditors and I would be quoting a lot less than 22K.
@OP
Also companies these days are positively encouraged to prepare as much of the accounts as possible, so they take ownership of the numbers.
It sounds like your invoice to the client should have a separate category of preparing accounts shedules for presentation to the auditors.
Line of least resistance
Where another firm or client has actually prepared the accounts, this requires a different approach from the auditor's than the usual modus operandi hence the reluctance to change (auditor's are not exactly renowned for their orginal thinking).
I would imagine that if you press the point regarding account's prep, they will just decide they have to carry out more work.
If it were me, I would be looking to pass the client over entirely. You will only end up working for free because the auditor's won't.
How do you know what it's worth? By valuer reports? These take time to audit if you're following ISA 620 properly, and have to be done by a relatively experienced member of staff (ie expensive). With four property companies, that means there will be some with relatively low materiality. You may be looking at 100% testing for those.
As you pointed out, there's also rental income - this will need to be tested by reference to original leases, both on terms of cash collected and the accounting treatment (rent free periods, etc). Although the ticking of the cash collection can be done by a relatively junior member of staff, the rest of it can't.
In my experience it was extremely rare for clients to prepare adequate summaries of leases that could be audited - they would simply give you a couple of spreadsheets and the documents, without a proper explanation of underlying logic/accounting principles, etc.
I dont see it as that big a job
How do you know what it's worth? By valuer reports? These take time to audit if you're following ISA 620 properly, and have to be done by a relatively experienced member of staff (ie expensive). With four property companies, that means there will be some with relatively low materiality. You may be looking at 100% testing for those.
As you pointed out, there's also rental income - this will need to be tested by reference to original leases, both on terms of cash collected and the accounting treatment (rent free periods, etc). Although the ticking of the cash collection can be done by a relatively junior member of staff, the rest of it can't.
In my experience it was extremely rare for clients to prepare adequate summaries of leases that could be audited - they would simply give you a couple of spreadsheets and the documents, without a proper explanation of underlying logic/accounting principles, etc.
In terms of investment properties we are only talking about companies B and C.
Judging by the level of rental income I do not think we are talking about that many properties. Also, say 4 rental receipts per property per year, not that many transactions either.
Consequently I would have thought a review of all the relevant lease docs could be carried out in a couple of days. Say £1500 for that part of the job max at my chargeout rate.
Granted I have assumed that they are commercial properites, and if residential there will be a lot more of them, however the issues to consider will be simpler.
Perhaps the OP can give us an idea of how many properties are in the portfolio.
We provide a perfect TB and full accounts to the auditors of a client which is in essence two directors, and some travel and at best 2 dozen sales invoices a year.
£10k later its audited, which I understand is the lowest available fee in the city from sounding out several contacts.
We even filed the CT600 once they had sent the iXBRL file to us.
Work their end? One very bored junior who couldn't even string the audit out until 3pm, and cut and past job into their accounts software to produce the iXBRL file, and trebles all round for the partner no doubt.
I was almost tempted to apply for an audit cert.........but I couldn't be bothered with the compliance side of it!
I was almost tempted to apply for an audit cert.........
Well if those fees don't tempt you, they must be worth paying.
too few reg. auditors
Before audit limits were increased most practices were audit firms so there was a degree of competition in the market.
Compliance costs are high for Reg. Audit practices along with a reduction in the number of firms offering audits so we now have a situation where audit firms can charge what they like.
I'm going to say it
Unless you are in London £22k is a rip off. And if in London get a firm from somewhere just outside London to do it.
If the info you have given is correct we would be delighted to do this work for half the price!
Guestimate
OK, on that basis I'm going to adjust what I said above - £22k does sound high. How much of that is financial statement prep?
For pure audit work, that sounds to me like 3 days of planning (say £3k), 5 days from a junior (£2.500), 5 days from a more senior trainee (£5k), 1 day review by manager (£2k), 1/2 day review//"relationship work" by the partner (£2k). That gets us to £14.5k. Add in 3 days of completion (£3k) and we're looking at £17.5k. 80% recovery takes us to £14k.
So my guestimate for a quote would be something in the region of £15k for the audit, depending on local conditions. If this is busy season, would be looking at the higher end.
London auditors
We're ICAEW auditors based in London on the Citry fringe. Based soley on the information above (which may of course be incomplete) I can't see that we would quote more than £12k plus vat.
we charge £5000
we charge £5000 for an audit of an investment company with approx 10 residential l/hold & f/hold properties, an investment portfolio and loans to the directors trading co. we are based on outskirts of london so £22k does sound expensive.
get in touch if i can be of more assistance.
Way to much!
I used to do audit work a few years back. I remember four years ago an audit firm decided that audits below £20k should be dropped.
The way this was done was to ensure prices quoted were always at least £20k, if the client pays it great, if it finds a new auditor, it was considered no loss.
The same tactic may be being used here. I would say that even £15k is on the high side, £10k seems about right to me (including the accounts prep). Perhaps £15k if the client wants a London auditor.
How important is a "big name" on the accounts for the client? If not important, go with a smaller firm. They are more likely to do a better audit in my opinion, as more time will be spent on it and you won't be "small fry" for a smaller accountancy firm: they will want to keep the client happy. I found auditors at smaller firms on average no better or worse than those from larger firms, unless in a highly specialist area where a small firm may not have the expertise (property investment companies are ten a penny). All large audit firms I know of have been caught out numerous times for poor audits of companies that failed.
You may find the auditors use all sorts of words to justify the fee, but words must be ignored in such a case as this, where it is obvious symatics are used. Sometimes Accountants decide what the fee should be, and the try to find the words to fit the price tag. Whether they call it accounts prep, audit or whatever, don't get stuck on the words, otherwise its a battle you may lose in the eyes of the client, even if you are right. Look to what other firms are quoting for the same work, the client must decide at the end of the day.
Agree with The Limey
I agree totally with the Limey. I am based in East Sussex and working from the info above would be quoting somewhere in the region of £15k for the audit, I do a number of property company audits and they are always messy but relatively straight forward.
But if in or around London would expect this to be £20k ish so the quote may not be too bad depending on where you are based.
audit fees
Maybe a simple question, but why bother with an audit at all, as only one of the three limits has been breached (balance sheet value) not two?
Only 1 breach needed
Unfortunatley until the rules are changed (expected later this year) only one breach of the limits is all it takes to trigger an auidt requirement.
Are you actually preparing the statutory accounts in the format required by The Companies Acts and accounting reporting standards? From one comment above, it seemed you just provided a trial balance. If you're not preparing the stat accounts, then obviously the auditors need to do that in addition to the actual auditing of the accounts.
I have a couple of clients who need audits, but I provide the auditors with not only the trial balance and working papers, but I also draft the full statutory accounts which knocks quite a bit off their audit fee.