Auditors' expectations rising.. But fees are low!

It was recently reported by The Economic Times that India is among the lowest Audit Fee markets.
Let’s explore the intriguing dynamics of audit fees in the Indian market.

Audit fees in India tell a fascinating story

While the economy has been on a growth trajectory, audit fees have failed to keep pace, unlike their counterparts in the US and UK markets.

For instance, between 2018 and 2023, while audit fees for listed companies on the FTSE in the UK increased by a staggering 75%, in India, the growth was a modest 28% for Nifty 500 companies.

According to data provided by Prime Database,

Market capitalization (total value of company shares) grew by 92.75%.
Net sales (revenue from selling goods/services) rose by 83.7%.
Profit after tax (PAT) increased by 126.2%.

Despite the significant growth and operational performance of companies, audit fees in India have lagged, raising questions about the dynamics at play.

Source: primeinfobase.com and ET Research

Challenges Auditors face…

Complex business operations
Heightened regulatory oversight
Escalating talent and organizational costs

NFRA Chairman Ajay Bhushan Pandey acknowledges the inadequate compensation received by Indian auditors compared to their global counterparts.

‘He said that there are a few listed companies on both the NYSE and the Indian Stock Exchange facing significant discrepancies. There is a huge difference in fees between auditors abroad and those in India, despite the tasks being practically identical.’

Sudhir Soni Head of Audit at BSR & Co told ET,

“Expectations from auditors are rising, but it’s not translating into higher audit fees.

Conducting a high-quality audit requires many components: good talent, technology, and robust quality management processes. And that requires continued investment in all three areas, but the low fee levels can become a challenge.”

Audit fee charges

The following data from Primeinfobase reveals the audit fees earned by the top firms on the audit of listed entities between March 2018 and March 2023.

CS Kunal based on the Annual Reports for the FY 2022-23, has also compiled a list of companies and their respective auditors. Details are attached below.

What is ICAI doing about it?

The Institute of Chartered Accountants of India (ICAI) has proposed a range of charges for audit and certification services, but these are recommended and not compulsory, leaving room for negotiation.