Overall, average audit fees increased by 4.6 percent from 2021 to 2022. Forty-seven percent of member company respondents also indicated an increase in effort to support the external audit while 51 percent reported no change year over year. That’s according to the 14^th Annual Public Company Audit Fee Study, commissioned by he Financial Education & Research Foundation, which looked at various factors affecting financial reporting and external audits.

Additionally, the study found that 21 percent of respondents noted acquisitions as the primary driver of the increase in management’s effort to support the external audit, which was consistent with 2021 and 2020. Additional reasons cited were changes to ICFR followed by divestitures.

Notably, communication was better following COVID-induced remote work environments and even enhanced the quality of the audit, with 81 percent of public companies indicating they were happy with their audit.

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90 Percent of Public Companies Reported Their Auditors are Bringing Data Analytics to The Audit

Consistent with the prior year, 89 percent of preparers surveyed indicated that their auditor used advanced data and information analysis as part of their audit processes. Almost 80 percent of audit partners surveyed indicated that they used data analytics and/or other emerging technologies as part of their most recent audit in 2022, reflecting a five percent increase over the prior year. Notably, 64 percent of preparer respondents whose auditor employed emerging technologies felt their use resulted in improved audit quality, as compared to the 49 percent who expressed such a view in the prior year survey.

A Majority of Audit Team’s Time Will be Spent In Person to Support the Audit

While it is difficult to know if the financial reporting ecosystem will ever fully revert to pre-pandemic operations, it appears many companies and their auditors are continuing to increase in-person engagement.

More than 55 percent of audit partner respondents indicated they expect that their audit team will spend more than 50 percent of their time together on-site at the client or at the firm office during peak times, compared to less than 25 percent of audit partners who indicated they had this expectation in the prior year survey.
In the current year, 43 percent of preparer respondents cited, that, moving forward, they expect their finance and accounting teams to spend 50 percent or more of their time on-site supporting the financial statement audit during peak times, compared to less than 15 percent who indicated such in the prior year.

While there may have been a period during which auditor and preparer expectations about in-person engagement differed, challenges in this area appear to have eased. Sixty-five percent of audit partner respondents in this year’s survey indicated that their expectations regarding the amount of time their team will spend together in-person are aligned with those of their engagement team.

Although in-person engagement is increasing, the strong communication strategies that have been adopted, along with the available virtual collaboration platforms and other technologies, will continue to allow preparers and auditors flexibility in how they work. They will also continue to provide a broader pool of talent from which to draw, which will be critical given the challenges discussed as related to the demand and shortage for accounting personnel.

The Impact of AI on Financial Reporting

Auditors and preparers are beginning to discuss AI adoption plans.

36 percent of preparer respondents indicated they plan to incorporate the use of AI into their financial reporting process within the next five years

Many Companies are Starting to Incorporate Sustainability Reporting

The shift from voluntary to mandated sustainability reporting remained a major topic of focus for preparers and their auditors.

70 percent of preparer respondents indicated they disclosed climate-related risks that were considered in the preparation of their most recently filed annual financial statement, a slight increase compared to the previous year
80 percent of respondents cited data gathering and aggregation of climate-related information as the most significant impact on a client related to the SEC’s proposed climate-related disclosures rule
92 percent of S&P 500 companies mentioned climate-related risks in Item 1A (Risk Factors) of their most recent Forms 10-K

“This is perhaps one of the most important periods for the future of financial reporting,” said Andrej Suskavcevic, CAE, President and CEO of Financial Executives International and Financial Education & Research Foundation. “Over the past few years, we experienced many transformative events in the profession, such as Accounting Rules (ASC 606, 842, CECL), corporate digital transformation, and the turbulence caused by COVID-related impacts. As we look forward, there are numerous changes on the horizon that auditors and preparers will need to traverse including SEC’s rules for Climate and Cyber Security and transformative technologies. Our members and their auditors will need to use the knowledge gathered over the past years and apply lessons learned to successfully navigate what’s ahead.”