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Nonaudit services on the decline

Following the recent series of corporate accounting scandals in the United States, audit firms are performing less nonaudit work for both U.S. and U.K. companies, according to a survey by the Investor Responsibility Research Center (IRRC). “Audit Versus Non-audit Fees: What U.S. and U.K. Companies Pay Their Auditors” reveals that, of surveyed organizations reporting fees paid post-Enron, the proportion of nonaudit fees paid to auditors was 66 percent, compared to 72 percent combined for pre- and post– Enron reporting companies.

According to the study's researchers, the drop in nonaudit services can be attributed to a decline in the proportion of IT fees for late– reporting companies – whose fiscal years ended after Dec. 31, 2001 – to 3 percent, compared to 9 percent in the overall study group. Furthermore, 12 percent of the companies with fiscal years ending on or before Dec. 31 purchased IT services from their auditor, whereas only 6 percent of late-reporting companies purchased such services. The study points to the significance of these findings in light of the recent legislation that prohibits registered public accounting firms in the United States from providing financial-related IT services to the same clients for whom they perform audit services.

For the study, the IRRC analyzed fees from 1,240 U.S. and 500 U.K. publicly held companies. According to the results, the two countries' firms pay approximately the same amount for audit services, with a mean of $1.3 million reported by U.S. companies, compared to $1.1. million for those in the United Kingdom. U.S. organinations, however, average $3.2 million for nonaudit services, whereas their U.K. counterparts average only $2.2 million. In addition, less than 1 percent of those U.S. companies analyzed did not pay any fees to their accountants for nonaudit work, whereas almost 2 percent of U.K. firms did not use their auditor for nonaudit services.

For more information on “Audit Versus Non-audit Fees,” visit the IRRC's web site at www.irrc.org.

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