What makes up a statutory audit fee

The question usually comes up in the first conversation: “how much does a statutory audit cost?”. The honest answer is that there is no list price, because no two companies have the same file. What can be explained is what the fee is made of and what moves it up or down. This article contains no figures; it contains the elements you will find, broken down, in any serious audit proposal.

A fee is time, not a volume of documents

An audit is planned in hours, by phase and by level of experience. Each area — revenue, inventory, fixed assets, liabilities, provisions — is given a number of hours, depending on the risk assessed and on how easily evidence can be obtained. Partner hours cost differently from the hours of an auditor with two years' experience, and a proper proposal shows that breakdown rather than a single sum.

The four phases

• Acceptance and planning. Independence and customer due diligence checks, understanding the business, setting materiality, assessing risks and writing the audit programme.
• Interim fieldwork. Understanding the processes and controls, testing them where we rely on them, observing the year-end stock count.
• Final fieldwork. Substantive procedures on each area, third-party confirmations, checking the disclosures in the financial statements and the notes.
• Reporting and review. Two levels of file review, discussing findings with management, issuing the report and the management letter.

What makes an engagement more expensive

• The first audited year. The opening balances have not been audited, and the auditor must obtain evidence that they are free from material misstatement (ISA 510). This is usually the largest difference in effort between the first year and the following ones.
• The number of entities, sites and processes and the systems in use: a single ERP with data that extracts cleanly costs less than three systems that do not talk to each other.
• Group requirements: a component reporting package, with its own instructions and deadlines, adds work on top of the local statutory audit.
• Areas involving estimates: provisions, impairment, revenue recognition on long-term contracts. Where there is judgement, there is documentation to test.
• The quality of the documentation provided. A reconciliation prepared and explained by your team is checked in minutes; one redone by the auditor is paid for in hours.

What makes an engagement cheaper

• Appointing the auditor in the autumn, so the work can be spread over two periods instead of piling up in March.
• The document list received when the contract is signed, and prepared before fieldwork starts.
• Accounting policies and estimates set down in writing, not reconstructed on request.
• A single point of contact in the company who knows where the documents are.
• Continuity: from the second year, the auditor already knows the processes and systems.

The second element of the cost: your team's time

The fee is only half of what an audit costs. The other half is your own team's time. For a company of 150–⁠250 employees that keeps its accounting in house, we estimate 8–⁠12 person-days over the whole engagement, with requests grouped and the full list of documents handed over on the day the contract is signed. Two offers with similar fees can mean very different effort on your side, and the difference only shows in February. That is why we put the estimate in the proposal, alongside the fee.

What a proposal looks like

We do not work to standard rates. Each proposal is built on the company's risks, structure and needs, and you receive it broken down by phase within one working day of our receiving the information we need. If the estimate changes along the way — documents arriving late, new entities or processes, issues found in the meantime — we tell you at once and agree any additional fee in writing before it is invoiced. The procedures needed to obtain sufficient appropriate audit evidence are performed in any event: the scope of the audit does not depend on the budget.

Three questions to ask any bidder

• Who actually works on the file, and how much of the time belongs to the partner who signs the report?
• What happens if hours run over the estimate — who decides, and when do I find out?
• How many person-days do you estimate from my team, and in which months?

If you want an answer based on your company's own figures, the free 60-minute assessment is the place to start; if you are already at the stage of requesting proposals, ask us directly for one in writing.