Audit fees surge amid regulation and skills shortagesby
Audit fees paid by the UK’s top 500 businesses hit £1.27bn last year, with growing regulatory pressure and skills shortages driving up the costs.
According to research from Thomson Reuters, audit fees jumped 14% over the past 12 months. The main driver for this increase was regulatory pressures and the ongoing skills shortages.
The value of audit fees paid by the UK’s 500 biggest businesses climbed from £1.05bn in 2019/20 to £1.12bn in 2020/21 before hitting £1.27bn in 2021/22.
Kyle Gibbons, managing director for Confirmation at Thomson Reuters said: “Auditors have invested heavily in recent years into delivering high-quality audits. “This has inevitably put upward pressure on audit fees. However, the risks of coming under regulatory scrutiny means executing audit work to the highest standard is absolutely crucial.”
Pressure on staffing
The skills shortages facing audit firms have also contributed to the higher fees. It has meant firms have had to increase salaries in order to retain employees or to recruit new talent.
Responding to the research, Kathryn Cearns, former chair of the Office of Tax Simplification said: “There is a lot of focus on audit quality and that’s putting pressure on auditors to up their game. There is also a scarcity of talent, which is putting pressure on audit fees.”
The impact staff shortages are having on fees and the quality of audits is a growing concern for firms. Earlier this year, Katherine White, an audit partner at Buzzacott, flagged that one of the biggest challenges across the profession is “to make sure audit quality is good, despite not having as many people as you might normally want to do all the work”.
Despite these staffing problems, she advised firms to not overstretch themselves. “There are certainly opportunities for firms to win new audit work, but how do they manage not to overstretch themselves because they don’t have enough staff to do that work to a good standard?”
With so much pressure on staffing, Thomson Reuters’ Gibbons suggested the use of automation as a way of controlling fees while also enabling “junior audit professionals to focus on developing their skills, which in turn will improve job satisfaction and retention.”
Increased fees, increased sanctions
The same year the audit fees almost hit £1.3bn the Financial Reporting Council (FRC) dished out fines totalling £46.5m (£34.6m after settlement discounts).
The biggest fine that year went to KPMG for the restructuring of mattress company Silentnight. The Big Four firm was fined £13m for its lack of objectivity and integrity after the partner concocted a plan that would see the bed manufacturer driven into insolvency, which would allow its acquirer HIG to shed the business of the pension scheme liability at a low price.
The accountancy watchdog imposed 14 sanctions in the same year, including a £4m sanction to Grant Thornton for the audit of Patisserie Valerie and EY receiving a £3.5m fine for the audit of Stagecoach.
KPMG received the highest number of fines that year at £23.3m before any settlements. Some of the Big Four firm’s high-profile audit failings included a £4.3m fine for Conviviality and a £4.5m sanction for Rolls-Royce.
The big fines continued with the FRC reporting last month that large accountancy firms racked up fines of £40.5m last year.
PwC received the biggest fine from the accountancy watchdog for audit failings. Top of the list was the Big Four firm’s audit of Babcock and Devonport Royal Dockyard, which incurred a financial sanction of £7.5m before any settlement.