Rising risks coupled with absence of any rise in fees in real terms over recent years have made rendering of audit services less remunerative, industry players said. The auditors of the Big Five firms claim that the risk-reward matrix is getting unfavourable for the firms, which is also affecting their ability of attract talents.
“The audit income in India for our top companies aren’t increasing at the pace it ought to. This is affecting the ability of firms to pay attractive compensation and retain the best people. In the UK, in the last 5 years, audit fees have increased by 85% for the top 100 audit companies whereas in India that number is under 10%,” said Vishesh C. Chandiok, CEO, Grant Thornton Bharat.
The situation is even grimmer for smaller audit firms. As for the larger firms, audit functions are often cross-subsidised by income from assorted non-audit services, including consultancy and management services. The regulator National Financial Reporting Authority has dissuaded auditors from providing non-audit services to the same companies or related parties
As per primeinfobase.com, the audit fees collected by three top audit firms – out of Big Five – have gone up marginally between FY19 and FY24. For instance, income from audit services of EY Group has risen from Rs 129.95 crore in FY19 to Rs 153.78 crore in FY24, registering a CAGR (compounded annual growth rate) growth of 3.4%. Similarly, the growth in audit fees for KPMG Group stood at 3.6% during the same period. However, firms like Price Waterhouse Group and Deloitte Group have registered impressive growth in audit firms but on much smaller base.
Even though the companies included in FY24 data (1,049) is considerably smaller than FY19 (1,557) due to the time lag in reporting of numbers by the companies in FY24, it still captures almost all top 500 companies in India, and does reflect the overall trend.
Several experts said that the company managements usually pick up the lowest bidder without assessing the quality of services that are being offered, and in such cases, the role of the audit committees become crucial because they understand the risks associated with low-quality auditing.
“The companies must prioritise quality and the capability to manage complex audits over simply selecting the lowest bidder. This is where the role of the audit committee becomes crucial,” said Samir Shah, head of audit at Deloitte India.
According to primeinfobase.com, the per-auditor fees has also stagnated over the past five years. For instance, the per-auditor fees which stood at Rs 2.01 crore in FY19 has marginally gone down to Rs 1.95 crore in FY24.
Experts said that the pressure on auditing fees has coincided with the rise in regulatory costs. “The multi-disciplinary big firms are able to invest and pay because of the profits from non-audit but the older Indian firms are struggling and if nothing changes, they will continue to lose out,” said Chandiok.