As any successful businessperson knows, benchmarking is a respected – and expected – practice in business operations. Instead of merely looking inward to determine industry performance, it helps companies to look outward, especially when benchmarking a competitor that enjoys a positive and respected reputation as a business model within an industry.

However, most businesspeople also know how difficult and time consuming the process is, yet this can be aided through technology as this article will further explain.

The bottom line is that it makes good business sense to benchmark your business practices, especially audit service and fees. The benefit of completing this exercise generally far outweighs the cost. Having an audit fee/service analysis completely customized for your company is good business practice at the end of every fiscal year, especially given the relative increase in work effort and fees over the last few years.

The foundation for doing audit fee/service benchmarking is up-to-date data, not stale information compiled from last year or the year before, and also by obtaining independent industry analysis across as wide of a peer group as possible. It can be simple to look up a few competitor’s audit fees in the SEC’s EDGAR database yet this can become quite time-consuming to do for 75 to 100 companies in the same industry.  Furthermore, a comprehensive benchmarking of an auditor takes into consideration many additional factors, including the service a company provides, market share, and clientele for the particular audited location.

So, when it comes to finding the right audit market analysis for your company, several questions and concerns come to mind:

• Are you paying too much for your audit services?
• Are audit service fees increasing or decreasing in relation to the industry?
• What is the quality of your auditor’s services in relation to the industry’s competing firms?
• Market share of the auditor in that industry
• Market share of the auditor in your region and specific area
• Changes from that audit firm to other firms for the industry or your area
• The level and type of control deficiencies issued by your auditor in relation to others in the industry
• How do you find the right audit firm for your company?

Internet Databases and Auditing Software

Using online data sources provides instant information that allows a company to benefit from better understanding their financial statements, suppliers and customers, as well as determining the overall quality and fee structure of various auditors.

However, such online data sources are not meant for novices. Finding the right online data provider and accumulating that data accurately and for the right price can be a daunting challenge.  For example, to determine a full peer group of companies in your industry could take hours if not days of looking at public SEC databases. Once identified, fee information would then need to be culled from such online documents in a manual fashion by looking at 10-K and 10-Q documents, not to mention all of the other audit-related information that is useful in conducting a proper fee analysis.

This is where online database providers come in to fill a need in the marketplace. Such providers spend all of their time organizing the vast amounts of data into usable information, saving companies time in the information retrieval process. For example, AuditAnalytics™ combs through all SEC filings so that they can “tag” information associated with external audits, audit fees, company controls, internal control opinions, company legal matters, and the makeup of audit committees.

Using software that focuses on key phrases or categories, financial directors can filter data by another company's location, size, or industry, and pinpoint deficiencies in a multitude of areas.

Benchmarking Audit Fees

To understand the value of benchmarking audit services, it's important to understand the process. A thorough benchmarking report should contain analysis on, but is not limited to:

• Developing a peer group that contains up to 100 companies within your industry and company size. For instance, if you’re in the pharmaceutical industry, this report would permit you to see all relevant data on all comparable competitors so you could better assess your audit spend.  Comparable competitors may be based on revenues, assets, location, services provided, or a combination of these factors.
• Lists actual audit fees other companies in your peer group pay for easy comparison to your fees over the last three fiscal years. This listing will quickly and conveniently help you make that determination if you are overspending. You obviously don’t want to overspend, but it’s also essential that you get your money’s worth. 
• Identify restatements, internal control disclosures and deficiencies reported by auditors over the last three fiscal years for use in the coming year. This is critical information for you to know so you can better assess where your focus is versus where it should be.
• Provide internal control deficiencies in your industry during the previous three fiscal years. Knowing what other companies are focusing on can give you valuable insight into other areas of opportunity. It may also help to explain the fee rates for some audits that have a host of control issues.

• Helps you to determine if there is a concentration of a small group of audit firms from within your peer group of companies. If a relatively small group of firms is handling auditing for a lot of your competitors, costs may be higher because of a lack of competition.
• Assess the size of your audit to all of the audits completed by that firm’s location.  You can essentially calculate how much your audit means to that local office.
• Allows you to benchmark audit as well as non-audit fees that were paid to audit firms within your peer group of companies.
• Provides you with details on the level of audit firm changes within a two year period. This gives you solid information about what companies are changing their audit firms and may indicate that the fees charged by these providers are out of line or that the level of services provided is inadequate.

To complete the above analysis in a manual fashion could take weeks of manual effort so the selection of an appropriate online database is critical to doing this analysis in a cost effective manner.  Using this service, Audit Software Professionals provides a pre-defined audit fee benchmarking service to help companies save even more time and money. Internet databases are expensive and the time to properly accumulate this data can be a resource drain. Audit Software Professionals not only has licenses to the databases but also will complete all of the effort for you so that you simply receive a customized audit fee and internal control analysis.  A couple of examples of audit information gathered in benchmark analysis reports are displayed in the below charts:

More information on this service, audit fee/service benchmarking, and the AuditAnalytics™ online database is available at www.auditsoftware.net/auditanalytics.html.