Companies are being faced with increased audit fees in the wake of the Enron debacle.
In order to reinstate confidence in the integrity and transparency of audited accounts, companies are now willing to pay higher fees than in the period prior to the US energy company scandal. Increased competition among accounting firms had previously been forcing auditing fees ever lower.
Accounting firms are however simultaneously losing non-audit business, which is often responsible for a greater proportion of their total income. The decrease in the amount of non-audit business, which includes corporate finance and tax work, reflects concern over potential conflicts of interest for accounting firms. Enron’s former auditor, Andersen, received over half of its $52 million Enron related fees for non-audit business last year.
Another reason for the increased fees is the shadow of litigation cast over the post-Enron accounting profession. Former employees and shareholders of the now defunct energy giant are currently seeking damages from Andersen. Accounting firms are thus attempting to safeguard against potentially crippling negligence claims.
PwC, the world’s largest accounting firm, has highlighted the need for a review of accounting standards and independent regulation in the US in the light of recent events.