Increasing Audit Fees Moving Companies to Regional Firms

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More stringent and in-depth auditing standards have made external audits more time-consuming then ever, but the auditing teams at Tullius Taylor Sartain & Sartain don’t seem to mind.

The hard work is paying off.

The Tulsa-based accounting firm with an office in Fayetteville has seen a spike in the number of companies transferring their auditing business to the firm.

“Our business has grown significantly over the last five years,” said Todd Wisdom, audit partner at the firm’s Fayetteville office. “It’s a good time to be a local or regional firm.”

Wisdom said he credits the increase in business to more companies ditching the national accounting teams and looking to local and regional firms with better rates and top-shelf customer service for their annual external audits.

A slew of new standards and mandates – most notably the Sarbanes-Oxley Act, section 404 passed in 2002 and the risk assessment standards required by private companies taking effect this year – have added to the already lengthy list of must-dos for auditing teams.

The additional workload for auditors has translated to higher auditing fees for both public and private companies, Wisdom said.

Ryan Underwood, Arkansas banking niche leader with BKD LLP in Little Rock, said public companies saw a spike in auditing fees a few years ago.

The rate spike is evident in Wal-Mart Stores Inc.’s annual audit fees, which are reported in the company’s annual proxy report. In 2002 the fees came in at $2.75 million. Last year the international retailer paid Ernst & Young LLP more than $14.3 million in audit fees.

Baldor Electric Co. has seen its audit fees spike nearly 2,000 percent from 2001 to 2007.

Drew Speed, BKD’s director of accounting and auditing for Arkansas, said the rate increases for private companies have also been on the rise. New standards have increased fees for the past few years and the new risk assessment standards will further increase audit fees for private companies.

The fee increases are no real shock to companies, which understand that more work equals higher fees, but many companies have begun to question whether they are getting the best deal and are consequently shopping for new accounting firms.

A 2007 study conducted by Finance Leadership Exchange noted that many of the mid-sized companies surveyed were making the switch from national to regional firms.

USA Truck Inc. made the jump from accounting heavyweight Ernst & Young LLP to Grant Thornton LLP in 2006.

Company chief financial officer Darron Ming said the main reason for the switch was increasing fees.

“Ernst & Young tried to audit USA Truck as if it was a big company,” Ming said. “Grant Thornton talked about applying a different philosophy to mid-sized companies. Secondly, we wanted an audit firm where we weren’t a small fish to them.”

The switch helped reduce the company’s annual audit fees by nearly half. Wisdom and Underwood both said they have seen companies turn to their respective firms with the same discontent for the national firms.

Wisdom said regional firms have been able to deliver because they can provide the same level of service and expertise but lower overhead allows them to keep their costs down.