Audits can be very expensive especially for smaller sized businesses. There is a base set of procedures that must be performed on audits regardless of the size of the company. In addition, the more complexity in your business operations and/or accounting the more expensive your audit can be. So, audits for small and medium sized companies can be cost prohibitive.
A small audit fee can range from $20,000- $35,000. However, if you are larger entity with more complicated operations or transactions your audit fee can quickly become $50,000+.
The following are example areas that can drive the cost of your audit up:
- Acquisitions, mergers, corporate restricting, changes in parent companies, divestitures, etc
- Intangible assets
- Complicated equity or debt (warrants, convertible debt, options, etc)
- Pension Plans (defined benefit plans)
- Percentage of Completion Accounting
- Violations of debt covenants or other restrictions
- Organization is in trouble or may not be able to continue as a business
- Sister companies or other related parties that you have significant operations or transactions with
- Messy or missing accounting records
- Significant estimates contained in your financials (such as IBNR- incurred but not recorded expenses, revenue estimates, etc).
- Significant investments (especially those that are not exchange traded holdings, such as equity investments, alternative investments, derivatives, etc)
- An error in the prior year or a change in accounting practices (or a change in the accounting rules)
- Inventory that is a commodity or otherwise highly subject to price fluctuations
- Inventory that is slow moving, damaged, or obsolete
- Complicated lease arrangements
- Taxable entity structure (C corp) instead of pass through structure (LP, LLC, S Corp, etc) (especially those with aggressive tax positions)
- Ongoing, pending, threatened, or expected ligation
- Asset retirement obligations (such as asbestos in a building owned by the company)
- Foreign subsidiaries
- Non-cash or barter transactions
- Significant events that happened after the period under audit but before the auditors complete their report
What if an audit is too expensive?
If you would like to have a CPA come into your company, but an audit is too expensive there are other services that you can select that are more customizable. Examples are reviews, agreed upon procedures, compilations, and consulting services.