I. Introduction. The Securities and Exchange Commission (SEC) now offers the ability to do a full-text search on all company SEC filings made over the last four years (http://searchwww.sec.gov/EDGARFSClient/jsp/EDGAR_MainAccess.jsp). This search ability should allow for a relatively efficient and effective means of generating benchmarking data and information.
Public companies need to submit 10-Ks, 10-Qs, proxy statement DEF 14As, and many other forms to the SEC. These form filings provide useful information and data about many aspects of a company’s financial and non-financial results, procedures, and other attributes. Such factual information should be a very useful source for generating benchmarking data. And this benchmarking data should be helpful in providing a standard for decision-making.
The purpose of this article is to show an example of where the SEC full-text search capability has been used to relatively quickly generate some data, related to audit fees, from SEC reporting, and then to analyze the data to come up with what might be a useful result for decision-making.
II. Details. 10K filings, over the last 4 years, were searched, using the SEC full text search feature and the terms “accounting fees”, “accountant fees”, and “audit fees”. Because companies report these fees (I do not know whether it is required or not, but I suspect it is required), a lot of audit fee data is readily available in the SEC database. Many companies also report data to the SEC, such as audit fees, that are not directly in the 10K, but in supplemental forms, filed with the 10K. Often audit fees are reported using the form DEF 14A, Proxy Statement.
Audit fee amounts were obtained for 30 companies. These fees were found in the two most recent 10K filings (or supplemental forms) for the 30 companies. Audit fees for these companies range in amounts from $24,000 to $10,982,964 a year. Only “direct” audit fees were used in this article. In addition to the “direct” fees, other fees that are reported are “audit-related”, “tax advice”, and “other”. No amounts from these other three fee categories were used in this article.
The companies’ revenues were also obtained from the 10Ks for the years that corresponded to the audit fees. Revenues range in amounts from $263,287 to $7.9 billion a year.
These two sets of data (audit fees and revenues) were then used to determine what percentage of revenues do audit fees represent. The use of this percentage would be this: if a company’s audit fees are above a certain percentage of revenues, then the company should discuss with their auditor what “special reasons” exist to explain this higher than standard fee ratio. Such “special reasons” do exist.
For example, of the 30 companies for which audit fees and revenues were obtained for this article, four audit fees to revenue ratios were not used because the ratio values were much higher than the other ratios. The higher ratio numbers was considered to be outside the "standard” costs for most of the examined companies’ annual audit fees. These “outliers” could very will be due to those “special reasons” referred to above, which account for the higher than usual fees.
III. Results. With the audit fees and revenues data obtained from the SEC database, the audit fees to revenues ratios (as a percentage) were determined. After ‘throwing out” outliers, 55 ratios were used to determine an average of all ratios. This average of all ratios was 0.2%, or 0.2% of revenues is, on average, spent by these companies for “direct” audit fees, in recent years.
The standard deviation for this average of all ratios percentage is also 0.2%. Therefore, I would conclude on the basis of the average audit fee to revenue ratio and the standard deviation amount that if a company’s audit fee is above 0.4% (0.2% average plus 0.2% standard deviation) of revenues then the company should probably discuss with the auditor reasons for why the audit fee seems to be unusually high.
IV. Conclusions. This article explores the use of the Securities and Exchange Commission full-text search feature for the SEC company database to generate useful benchmarking data.
By focusing on one data set - audit fees - an attempt was made to show that useful benchmarking data can be fairly efficiently and effectively generated. The results are not met to be necessarily “scientifically” rigorous, but only to serve as “benchmarks”, or reference standards, to trigger questions and investigations when one’s own results differ from the benchmarking result.
This article reflects a principle purpose of the Management Accounting Information Center – to use the Internet as an efficient and effective source of information and as a tool to assist management accountants and other decision-makers to do their job. I would be very happy to discuss with you the possibility of my searching the SEC’s database to generate benchmarking data tailored to your needs. Please click here to send me an email if you think I can assist you.
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| Generating Audit Fee Benchmarking Data by Using the Securities and Exchange Commission’s Full-text Search Feature
December 27, 2006