Public Companies: Should You Consider Changing Auditors to Cut Costs?
Originally written for SME attribution for Armanino's COVID-19 Resource Center. Armanino LLP is one of the top 25 largest independent accounting and business consulting firms in the United States.
For many organizations trying to weather the COVID-19 crisis, preserving and protecting their cash runway is paramount. Public companies that are currently paying high fees for their SEC audits may be in a position to realize significant savings by switching auditors. For some, this may override the need to maintain the status quo during already turbulent times.
According to our most recent SEC Audit Fee Report, which benchmarks the fees paid to regional, national and Big Four external auditors, companies with less than $50 million in revenue using Big Four firms paid 69% higher audit fees than the average fees paid by firms with the same revenue. Companies within the $50 million to $100 million revenue range paid 41% higher fees than average when working with the Big Four.
To help determine if now is the time to consider an auditor change, ask yourself a few questions:
Has your business growth leveled off?
Many companies who have been public for 3 to 5 years or more find a number of things to be true. First, the initial years of being a public company often call for a Big Four auditor in order to maintain investor and board confidence. It can also be a bit of a reputational play, and a smart one at that. But as growth levels off and companies are no longer experiencing the hockey-stick trajectory, they often find themselves still paying very high audit fees when they no longer need to.
Are you being audited by standardized checklist?
National accounting firms are inspected every year by the Public Company Accounting Oversight Board (PCAOB), and therefore have a tendency to approach every audit in a rigid manner, throwing out checklist after checklist and hammering through every item. This adds billable hours to the bottom line and requires your team to expend time and resources on compliance.
Are you getting the attention you deserve?
Do you find that your phone calls aren’t getting returned by your current auditor as quickly as they used to? Or that your email requests are fielded by audit staffers instead of managers and partners? You may also be seeing significant staff turnover in your auditors, which means more time bringing new people up to speed. This is a common experience for many mature public companies and is often an indicator that it’s time to consider another audit firm that can provide a more customized, closer partnership.
Can you afford another year of paying the same fees?
Q1 to Q2 is when most companies review and consider changing auditors, often seeking cost savings. The 10-Ks are filed and their obligations to their current auditor are complete. This is the right time to take inventory and consider a change.