Open to the Public

When the U.S. Securities and Exchange Commission was attempting to shore up auditor independence last year, the accounting profession fought hard against various SEC proposals — particularly one that would have forbidden accounting firms from doing non-audit consulting work for their audit clients. In the end, the SEC dropped that proposal and settled for a new requirement that all U.S. public companies disclose in their proxy statements all fees those companies pay to their audit firms, broken out into three categories — audit fees, financial information systems design and implementation fees, and all other non-audit fees.
Since that disclosure requirement went into effect last February, a wealth of information that has never been released in the public domain has become available, providing unprecedented insight into the relationships major corporations have forged with their auditors. In fact, by settling for the disclosure requirement, the audit/consulting firms may be getting more than they bargained for.
"Disclosure gives you, as a purchaser of services, an idea of what a comparable company is paying for similar services," says Dawson Cunningham, CFO of Roadway Corporation. "That might ultimately help us hold the line on our costs."

From Fee Levels …

Beyond giving clients the means to comparison-shop and the leverage to negotiate, consulting- and audit-fee disclosures are also the basis of a body of research that is slowly developing. In just the first five months of required fee disclosures, two major studies based on that information were released.
The first study, which was released in May by the SEC's Office of the Chief Accountant, examined information in proxies issued by 563 of the Fortune 1000 companies and provided the first glimpse at the level of consulting fees companies are paying to their audit firms. And not everyone was pleased with what they saw. "In my opinion, the disclosures that were reported in the SEC study were a little different, perhaps, than the accounting firms had implied," says Lavon Morton, vice president and chief internal auditor for Arkansas Best Corporation, a $1.8 billion transportation company based in Little Rock. "Those firms had implied during the SEC rulemaking process that consulting fees were not at a level that anyone should be concerned about."
Overall, the SEC study found that for every dollar in audit fees, consulting/audit firms were paid $2.69 in fees for non-audit services. Moreover, those non-audit services accounted for 73 percent of the total fees billed by these firms to the companies surveyed. The ten companies that paid the most in IT fees paid their audit firms between $3.57 and $32.33 for non-audit services for each dollar in audit fees. (See the sidebar "Why All the Fuss?" at right.)