Audits Will Cost More in 2003 (Editorial)

With health care costs rocketing toward the Andromeda Galaxy, the last thing business owners need is another line-item expense with a double-digit increase. But it’s coming.

Audit fees are expected to rise 25 to 35 percent next year, most industry experts say.

One accounting practice consultant, D.B. Scholl Inc. of West Chester, Pa., said he’s not convinced the jump will be quite that dramatic. But even Scholl said a number of cost drivers are pressuring firms to raise audit rates.

Audit services have long functioned as a loss-leader item to attract higher-priced consulting work. So the general consensus is that attest services are already underpriced.

Many firm owners say there’s also still a shortage of accountants, although Scholl said that trend is improving nationally. More college students are majoring in accounting this year, apparently lured by the CPA profession’s newfound sex appeal brought by the book-cooking schemes at Enron and WorldCom and their subsequent media hype.

But short term, the labor shortage is forcing CPA firms to offer higher pay and/or increase workloads — both of which are affecting fees.

Tack on a 15 to 20 percent hike in malpractice insurance for auditors, on the heels of 2001’s scandals, and add the loss of profit centers due to the passage of The Sarbanes-Oxley Act of 2002.

The new federal legislation defines and restricts ancillary services that can be provided by auditors of publicly held clients. Basically, it prevents the attest services provider from doing additional work for the companies, such as internal auditing and certain kinds of consulting.

It also prevents employees of the auditor from going to work for the attest client within a year’s time of separation from the accounting firm, and it requires that lead partners on audits must be rotated every five years.

Although Sarbanes-Oxley deals only with publicly traded firms, individual states are beginning to impose their own restrictions on all attest work.

The best advice for audit clients is to plan now for the cost increases, and communicate with CPAs well in advance of an audit to see what preliminary in-house work can be done to save time. Maximizing audit time should save accounting costs and give business owners the truest X-ray of their financial health.