How long and how much to do an audit?

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A common question which I am asked quite frequently is ‘how much should I be charging for an audit’ and ‘how long should it take to do an audit?’.

Often these questions are asked because firms have lost an audit client to another firm who can do the job for substantially less than the outgoing firm has been charging and this often leaves firms perplexed because they, themselves, have often been wondering how a firm can charge up to, say 40% less, yet do the job in accordance with the ISAs. Firms have also asked me this question when they have been subjected to a quality control review from their professional body and they have run into problems because of poor quality audit work when they were under the impression they were doing things right.

 

This article will look at some of the issues firms need to consider when quoting for audit work, particularly due to the new standards which are starting to bite and how firms can ensure they do work in accordance with those standards.

 

It is fair to say that competition within the profession is fierce at the moment, and firms are struggling to balance compliance with regulation and surviving in a competitive environment. So how long should an audit take to complete and how much should we charge for it?

 

The answer to both questions is ‘it depends’.  As all practitioners know, the more work involved and the more complex the assignment, the more the fees should be. In terms of the length of the assignment then again, this would all depend.

 

A common theme in the comments on my

Directors Loan Accounts: Disclosure Issues

article, and certainly from regular threads posted on

Any Answers

is that other authorities such as HMRC and Companies House are accepting accounts which fall short of the mark in terms of basic issues – this is undoubtedly also the case for audited clients and firms that are trying their best to do things right and fight their way through the red tape are often exasperated because of the increasingly burdensome requirements we all face nowadays, many of which are cited by those in the profession as being ‘over the top’ for SME clients who do not understand half of the disclosures or auditing requirements anyway. Firms (audit and non-audit) are also becoming increasingly irritated by the increasingly ‘lax’ attitude of the regulatory bodies such as HMRC and Companies House because practitioners are subject to rigorous legislation and standards which are seemingly ignored by the various government departments in many cases and allow negligently prepared accounts to slip through the net.

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About Steven Collings

collings

Steve Collings, FMAAT FCCA is the audit and technical partner at Leavitt Walmsley Associates Ltd where Steve trained and qualified.

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19th Jan 2011 12:17

Dodgy audits

Interesting that you mention that there are '.....firms who choose to sign auditor’s reports without being eligible to do so'.

I know of unqualified firm's that sign off audit reports and other unqualified firm's that falsely claim to be ACCA firms.  The reality is that they do so with impunity.  I have complained to ACCA who wash their hands as they "do not have regulatory responsibility for persons who are not members", I have complained to Companies House who wash their hands as they are happy to accept rubbish "in good faith", HMRC don't care and Trading Standards take forever to do nothing.

You get no thanks for trying to do things properly.

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19th Jan 2011 14:29

Rogues
How anyone can do an audit in less than a week is beyond me. We lost a client to a firm who claimed to be able to do the job in a day for a couple of thousand which was far less than we charged. Turns out the new accountant wasn't qualified but took it on regardless. How are we supposed to compete when proffessional bodies won't even investigate these rogues?

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21st Jan 2011 18:28

threat from unqualifieds

I see this type of pitch on a regular basis, prices have come down very significantly and there are instances where we have lost work to unqualfieds who fix price for up to 4 years.

 

As regards audit work, this has never been profitable at the lower end of the market with small OMB/SME with turnovers below 8M.

It is shocking to learn that there are practices out there that can do work within a couple of days when it take much longer.

 

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22nd Jan 2011 03:02

We have our fair share too

I am a SMP practising in Malaysia. From the postings I observed that UK has its fair share of fee under-cutting; half-baked audit work; and 'bogus' auditors. At times, we the SMP practitioners would like to see our association, ACCA, ICAEW etc, taking stern actions on such 'unethical' matters. The fact is that it is not a simple exercise, and there is no legal provision to do so. The salvation rests with us, the SMP practitioners.

Over in Malaysia, we have a Recommended Practice Guide on how to charge the audit fee. It is very handy for the SMP practitioners. Members can raise a complaint if in-coming auditor discounted the audit fee below a certain threshold. 

Our clients, like any other consumers, will only pay for the 'value' they 'see'. How do we visualised our audit work and opinion into a tangible value that our clients can 'feel and touch' do that is the greatest challenge of our profession. It will take a whole chapter to answer the 'how to do it' question, a few pointers may kick start your thinking process - know your client's business; talk their language not jargons;  discuss business performance not audit findings; spend time with your client; invest in your staff training. 

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By djw090
22nd Jan 2011 12:16

Property Companies

The only audits I would expect to be done in 2 days are property companies. We have a couple of property company clients where they require an audit due to their gross assets exceeding £3.26M The properties are let on tenant repairing leases so the transaction volume is very low. I agree that in a normal trading company or a charity the situation is significantly different.

I must admit I find charity audits to be the biggest problem fee wise.

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22nd Jan 2011 12:38

Small audits

I agree with djw0910 - charity audits are a real problem.  Realistically the 500K audit threshold is way too low  Should be 2.5M at least.  It is always hard being ruthless in charging a proper fee for charity audits, but you have to as they are in fact much higher risk than trading companies and so you need to spend the time to do them properly.

Nearly all of our audit clients only require audits as they are members of ineligible groups - basically UK subsidiaries of large foreign groups.  I am starting one this weekend - turnover 30K with only 5 sales invoices, no debtors or creditors, 1 customer, 1 supplier.  I still expect it to take a good 3 days and the client can't understand why the fee is so high.

 

 

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25th Jan 2011 14:49

Charging for audits

I don't profess to be an expert on auditing, however, on the question of pricing I think it is very, very dangerous to get into a price war.

There will always be someone out there that will undercut you on price... don't play that game.  Firstly, it seriously erodes your margins, secondly those clients that choose you on price will be the first to leave you when somebody else comes along with a lower price, so your client loyalty is less and finally, lower prices may lead to cutting corners in an attempt to meet budgets which will compromise the quality of the audit work.

So accept the fact that there will be people that will try to undercut you on price.  Instead focus on the quality of what you do.

A couple of months ago I wrote a book on pricing for accountants and you'll find some really useful ideas on how to differentiate yourself.  If you would like a completely free copy of my book you can order a copy here www.freepricingbook.co.uk/acc.  I hope that helps.

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