Discussion:F/S Audits
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Discussion Forum Index --> Tax Questions --> F/S Audits
| 1 June 2006 | |
| Ok, a little change of pace from taxes. I have a client who needs a Financial Statement audit done and wants me to find an auditor. This is a first time audit and the client is an investment advisory firm that grosses $10M in fee revenue. I was a Big 6 auditor over 10 years ago and guessed the aduit to cost $20 - $25k. The first quote I received was $30 - 35K (client doesn't like that quote!). Does anyone know the going-rate for an audit of this type? ("ballpark" figure is fine). | |
| 1 June 2006 | |
| What percentage of accounting fees for the audit year been realized on the unaudited financial statements? An audit is very labor intensive and is also subject to high liability insurance....I would think that 30K for a 10 million dollar client is not unreasonable. Partner fees in Florida are billed at 300.00 to 500.00 per hour, associate and staff accountant fees at 150.00 to 200.00 an hour and administrative expenses from 45.00 to 65.00 an hour. Add costs to that, and it sure does not sound unreasonable to me... | |
| 1 June 2006 | |
| I could see $30k for a $10M manufacturing company. That industry is more complex -- bigger revenue cycle, inventory, etc. My client's business is very simple -- they do not take custody of funds and are purely investment advisors only. But I do agree that the cost (insurance) for a firm to do an audit is ridiculous these days because of the risk/fraud exposure. | |
| 1 June 2006 | |
| Touche! Why not approach it then from a balance sheet perspective? If they have very little in ways of balance sheet items, a/r, inventory, a/p, etc. then it would be most likely that it is only i/s derived audit. I still would workup a figure based on hours that it would reasonably take and decide from there what will be involved. Yes, partners will not be present on most audits...only to the extent of signing off and maybe making an "appearance", but you know as well as I that working in the audit department, partner's have time invested in reviewing the audit workpapers and billed at those rates, it can be costly.
If the balance sheet is simple, then I would approach a potential auditor with those facts...all they are auditing then is the income statement. imho of course :) | |
| 1 June 2006 | |
| THe other thing to consider is that 1st year audit generally cost considerably more than recurring work. There's definitely a lot more work involved. They might be able to lower the initial year fee by signing a 3 year commitment. | |
| 1 June 2006 | |
| The truth of the matter is that today you can ask as much as you want. There is very little competition for Audit services because they are complex and very, very risky for any auditor. I think that based on the little information you posted is an extremely good bargain (i.e. I am sure it is not a Big 4 bidding the work.)
The motive behind high prices is also the fact that very few business need a Financial Audit nowadays unless they want to get "moneys" from the market (outside investors;) therefore, the exposure of certifying inaccurate results gives a huge exposure that needs to be compensated. I would get more bids, and, hopefully, I may find an old fashion auditor that is not scared of today's market. | |
| 1 June 2006 | |
| Just another idea after fox....why do you need an audit? Can reviewed financials serve for the audit? If not a publically traded company or in anticipation of an IPO, or non profit or even government contract, sometimes an audit is not really necessary. Sometimes banks etc will ask for an audit to give loans, etc, but they will allow a reviewed financial or some other assurance on the financials....
Big 4 firms probably would not want this at 30K; they are more into the 75-100K mark now. I have never wanted to audit myself, but worked in auditing for some time with Coopers and Lybrand and worked my butt off. But bottom line, a reviewed financial can be almost as accurate as an audit....the liability is too great for me to sign off on something where even the owners could be cooking the books and is not picked up in an audit....imho...hehe | |
| June 2, 2006 | |
| Definitely get additional quotes. In addition, the cost of an audit is much higher these days because of Sarbanes-Oxley and additional requirements placed on auditors. | |
| 2 June 2006 | |
| A Review is something I've already proposed to the client. Today, many banks do accept reviews in place of audits because they realize the cost involved and it's only a few degrees of separation. If it's good enough for a bank then it should be good enough for a potential customer.
Thanks for everyone's input! | |
Chautauqua (talk|edits) said: | 2 June 2006 |
| Don't get in the middle of this situation. Let the client find his own auditor, otherwise if anything goes awry you will be blamed. | |
| June 3, 2006 | |
| Chautaugua, it sounds like you had a bad experience. I would say that as long as several quotes are obtained and the client makes the decision on who to hire, then GSJ should not be blamed. Clients often ask me for referrals for other professionals. In fact, I assisted a client in finding an auditor. I got the request for proposals from the AICPA website, modified it slightly and suggested several auditing firms. Since each firm received the same request, it was easy to evaluate the proposals. The decision was made by the board and client was happy with the result. | |
| 3 June 2006 | |
| The client wants me very much involved because we are not only their tax preparers but also their accounting department. Since I do have audit experience from my early days at a Big 6 "boot camp" I know what to look for and what to ask. Even though I have zero independence, I can still help prepare many of the workpapers and draft the financial footnotes to help reduce the cost.
Natalie, can you tell me more about how you used the AICPA website for RFP's? | |
| June 6, 2006 | |
| It took me a while to find it again, but I found the RFP templates under the tax center resources. They are also available under the audit committee toolkit tab. (For some reason, the RFPs do not come up if you just enter "request for proposal" in the search.) These are downloadable templates that you can modify in Word. After I received the proposals back, I created a spreadsheet to "score" each proposal.
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