Amy Reeve 10 Jul 2018 03:22pm

Why audit fees must rise

EY UK’s head of audit talked with economia about the influences changing the market and why fees will have to rise

Caption: Audit is already being transformed by the use of technology and digital platforms

A short piece in The Times newspaper last week reported that EY will increase the fees it charges Britain's biggest companies for audits. In the statement EY gave to The Times, Hywel Ball, the Big Four firm’s UK head of audit, said, “The fees that have been quoted for audit work have broadly remained flat since the audit regulations for tendering and rotation were introduced.

However, with greater market demand for new technologies and innovation in audit and the increasing demands of the regulatory environment it seems likely that fees will inevitably rise over the coming years. Society also seems to be demanding more than what the traditional audit delivers and our clients, together with the profession and the regulator, need to respond to meet this need.”

With the accounting profession and the Big Four in particular under scrutiny for the quality of their audits, ICAEW’s Michael Izza has described this period as a “watershed moment”. So we asked Ball to expand on his comments to The Times about technology and how that affects audit quality, the risk/reward of audit, and what to do about the expectation gap.

Ball says audit is already being transformed by the use of technology and digital platforms. In his own firm, EY Canvas - a global EY audit workflow tool - has enabled everyone involved in an audit to communicate and access information quicker and more securely, both within the team and client.

He says other innovative forms of technology – data analytics, robotics and AI – will also improve audit quality. Freeing up time from thankless tasks such as the preparation of audit confirmation letters using robotics. Additionally, a whole range of other digital tools will carry out tasks faster, and potentially more accurately, than a human ever could.

Ball says that when facing the increasing demands of the regulatory environment, his firm is committed to finding better ways to improve audit quality and respond to the challenges of the Financial Reporting Council’s (FRC's) Audit Quality Review (AQR), which monitors the quality of the audit work of statutory auditors and audit firms in the UK that audit Public Interest Entities.

The FRC’s latest review didn’t make for particularly good reading for the Big Four: the audit inspection results noted a decline in quality with 72% of audits requiring no more than limited improvements in 2017/18 compared with 78% in 2016/17. Ball says EY is investing to improve audit quality by building its audit control infrastructure and responding to audit tender demands  – all of which comes at a cost.

Amid the sanctions and fines handed out recently, EY is not in as much bother as some firms, with no current investigations.

The expectation gap – between what audit does and what society expects from it – is nothing new, he concludes. Nevertheless, how the profession responds in the wake of Carillion is critical. Relevant stakeholders must decide what role audit must play if they want to prevent such situations happening again. If the tools of the basic audit product need to include something more akin to a detailed working capital report written for an M&A transaction, for example, then that conversation must be had.

Ball is supportive of Project Flora, a fully independent review into the future and scope of audit that will look at the expectation gap as well as all of those other areas where an auditor can give assurance around a business. It’s important to get this right, he says. If we don’t, the profession could lose its attractiveness.