Audit fees charged by the big four firms are higher than those of independent CA firms. Big Four firms operate in the partnership model. The partners of Big Four firms own tiny units of the company. The senior manager and director do not have ownership. The other professionals work for a salary. EY has around 13,000 partners around the world. Deloitte has connections with 12,000 partners. PWC works with the support of 18,000 partners. KPMG has around 10,000 partners. One piece of news says that the senior partners at PWC, KPMG and Deloitte receive around $3.6, to $2.4m respectively. The audit fee of the auditors shows the challenges in the work and efficiency of the services.
Auditing is a competitive job. Companies charge audit rates based on the quotation that suits the client. The audit rate charged by audit firms is based on quantum, quality and reputation. In the case of a private limited company, the rates are charged based on size and complexity. The basic charges range from five thousand to fifteen lakhs. For a private limited company, the audit rates are in lakhs. For a listed company the audit rates are in crores. Big companies like L&T charge ten to fifteen crores for the audit process.
The different types of statutory audits are financial audit, secretarial audit, cost audit, billing and metering audit, GST audit, tax audit, internal audit, branch audit, audit of credit rating agencies, performance audit of cooperative societies, and internal audit for depository operations. Before starting a statutory audit, the auditor checks the operating environment, internal control systems, bank account balances, financial information and operational effectiveness. The internal and external systems throw light on corporate practices and risk factors. Statutory audits help to understand the mistakes and risks. Recently ICAI launched a tool for calculating the audit fee depending upon the services offered by the auditor firm. The tool connects the audit services and requests location to calculate the audit fees. ICAI says that the members are given the freedom to charge variable rates depending upon the complexity of the work undertaken. The blog highlights the details of the tool and the need for transparency in the auditing profession. The calculator is accessible through the official website of ICAI.
Audit fee calculator:
The tool has divisions of services such as income tax filing, company law assignments, audit services, GST work and more. The user can select the details of the location and the type of user and check the audit fee for the services. The calculator provides the details of the recommended audit fee. The tool calculates the time taken for the audit work, complexity, location-based charges, and service demand. The calculator provides the recommended audit fee after calculating the essential factors. The standard fee improves the professional integrity in the auditing profession.
The auditors only know the complexity and risk associated with the work. The recommended fee and actual fee may differ depending on the nature of the work. The audit profession is a competitive and respectful profession. Auditors receive fees for the intelligence they use to understand the financial status and growth of the companies. The calculator helps the layman understand the charges for the audit process. The audit fee tool also promotes transparency and financial education to the general public. The knowledge of the audit process, audit challenges and audit fees helps in understanding the efficient work in the auditing job.
Importance of transparency in the audit profession:
NFRA is the audit regulator of India. Recently the corporate story brought the news of a ten crore penalty to Coffee Day Enterprise Ltd. The penalty is the highest one. The comparison of the penalties charged by NFRA and global regulatory bodies is a vast difference. NFRA orders a lower-side penalty. NFRA audit the audit firms. And, publishes reports to benefit the audit industry. The regulatory body was established in 2018. The year 2024 is the seventh year for NFRA. Big Four accounting firms receive a penalty of high figures for audit failures. PCAOB imposed a penalty of 58 crore on the PWC global network for violations in the quality control process.
In the stock market, the companies are divided based on the market capitalisation. Market cap interprets the market value and it is not used in times of merger and acquisition. The shares are overvalued or undervalued based on the demand and supply in the market. The stock market movement and real-time value are different valuations. Auditors play a pivotal role in attracting the investors, managing the risk factors and developing the company. The performing companies have high market capitalisation. The Indian and global companies stand in different places in terms of market capitalisation, competition, and market presence. Audit professionals expect a comfortable approach and give time for remediation. Transparency in the audit process improves quality, enhances value and helps the professionals to handle the issues with confidence.
Take Away:
Auditors have a different perspective about the audit fee and penalty. The corporates think about the growth and risk factors. The auditors think about the quality, risk factors and control systems. The audit watchdog and regulatory bodies understand the professional and corporate side of the issues. Transparency, standard audit fees and reasonable penalties reduce the mistakes and risks. The risk and quality measures make an organisation do an audit with an efficient audit team. Transparency in the audit fee improves the competition in the audit market. Transparency in the audit process and fees builds trust among the investors and regulatory bodies.