Finding the right auditing firm can seem daunting when you are a new business owner. With such a large market and such a large range of fees, it can be difficult to feel like you’re making the right decision about who to go with. In this article, we’ll go over why there is such a large range of auditing fees, and questions you should ask yourself and any prospective auditors to filter them down to the ones that meet your company’s needs.
Auditing Fees are Influenced by Multiple Contributing Factors
Audit fees are determined by a myriad of contributing factors that can create a very wide range of fees. For simplicity, we’ve combined several factors into overarching categories.
Company Size & Complexity
The size and complexity of your company will affect your audit fees. For example, a large company with a complex corporate structure will demand a higher audit fee because of the time it will take to process. This is especially true if consolidation is also involved.
In contrast, smaller companies in Hong Kong that qualify for the Small and Medium-sized Entity Financial Reporting Standard (SME-FRS), which is a simple reporting framework for SMEs, will have much lower audit fees.
Industry
Certain industries will command higher audit fees due to the complex nature of their business or the scale of their operations. Construction companies for example, often have long-running projects, progress billings, subcontractors and material work-in-progress balances that need to be assessed, which can include thousands of pages of supporting documents to be reviewed.
To make it as easy as possible to estimate a reasonable audit fee range for our clients, we categorize the fee ranges by business nature and scale. For simplicity, the following examples are based only on SMEs, because as companies become larger and more complex, substantially more background information is needed to estimate a reasonable audit fee. Keep in mind that these are only estimates, used only as a reference:
| Business Nature | No. of Properties | Est. Audit Fees (HK$) |
| Property Investment | 1 | 5,000 – 6,000 |
| 2 – 4 | 7,000 – 10,000 | |
| 5 or more | 12,000+ | |
| Services | No. of Transactions per Year | |
| <100 | 5,000 – 6,000 | |
| 100 – 300 | 6,000 – 8,000 | |
| 300 – 600 | 8,000 – 11,000 | |
| >600 | 11,000+ | |
| Trading | No. of Transactions per Year | |
| <100 | 6,000 – 7,000 | |
| 100 – 300 | 7,000 – 9,000 | |
| 300 – 600 | 8,000 – 11,000 | |
| >600 | 11,000+ | |
| Subsidiary holding company with no business operations | – | 6,000 |
| TVP Audits, BUD Fund Audits, and other government funds | – | 3,000 |
Prior Auditor’s Opinion
An auditor’s opinion is a grading of an audit and summary of the auditor’s experience, where an unmodified opinion means that the auditor concludes that the company’s financial statements give a true and fair account of the company’s past financial year.
If previous audits resulted in a modified opinion, future auditors will need to dedicate more resources to scrutinize areas that led to the previous opinion, to ensure that those areas are still compliant. Common causes of modified opinions can include incomplete accounting records, missing documents to support balances or transactions, an inability to verify inventory, receivables or assets, and non-compliant accounting treatments or disclosures.
Time Spent
Auditors typically charge by the hour, meaning that the more time they need to spend on an audit, the higher the fees will become. Extra time is often required when records are submitted late, incomplete, unreconciled or unsupported. As a result, the audit team may need to retrace transactions, request missing invoices or bank records, reconcile discrepancies and perform additional procedures to obtain sufficient evidence.
Size and Reputation of the Auditor
Established, reputable firms are highly prized in a field where errors can be extremely costly. The trust and peace of mind provided by reputable firms are a large part of why certain firms are in high demand, and why they can charge higher fees.
In addition, larger, international firms will often charge substantially higher fees because their target clientele are also multinational firms. Finding the right firm for you then will often depend on your firm’s size.
The market for auditors and CPAs in Hong Kong can be broken down by size into four types of service providers:
- Big Four Accountants – Usually serves large publicly-listed clients.
- Second Tier Accountants – Also serves large publicly-listed clients, with a small reputation compared to the Big Four.
- Small-to-Medium Practitioners – Serves SMEs with some level of complexity.
- Tech Startup Accountants – Often serves cookie-cutter dormant companies or simple businesses with very few transactions.
Questions to Ask When a Quotation Alone is not Enough
When gathering quotes from potential auditors, asking them questions will help you compare their scope, capability and service model, rather than comparing fees alone. Your goal should be to understand who will perform the work, whether the firm understands your industry and systems, what support you can expect during the audit, etc. A lower quotation may be less useful if it excludes important work, relies heavily on outsourced staff or leaves you without a qualified contact when questions arise.
Use the following questions to help establish whether the auditor is a practical fit for your company:
- Do they outsource the auditing services provided to your company?
- Do they have experience providing auditing services to clients in the same industry as yours?
- Will you have access to a CPA dedicated to your company to answer your concerns about the audit?
- Will your main point of contact be an accountant or a sales/account manager?
- Which accounting software does the auditor specialize in?
Conclusion
The fees an auditor charges has a large range because of all the different variables that go into the calculations, from your company’s size and complexity, to the auditor’s own size and reputation. Your company’s audit history also plays a huge part in whether you’ll be given a higher quotation, which is why it is vital for companies to maintain clean and clear records year after year.
A lot of factors go into calculating your audit fees, from the profile of your company to the profile of auditing firms themselves, which makes it tricky to get an accurate quotation. You also have a number of other service factors uncorrelated with price to consider when choosing your auditor that will make your experience easier or more difficult.
If you need help selecting an auditor, or would like to get an initial quotation, drop us a message and we’d be happy to chat!
