Estonian Auditors’ Association 13.09.2018:  Estonian Auditors’ Association analyzed the activity period of the audit firms 2017/18, which is characterized by revenue growth, a change in service structure, and higher service fees for customers.

During the period 2017/18, the sales revenue of audit firms increased by about 6%, but the growth was not even in all segments of activity. Corporate revenue growth of audit firms came from the provision of other services (e.g. legal, tax advice, accounting), which increased by almost a third, while the volume of assurance services (e.g. audit and review) decreased by 3 per cent. The latter can be explained, first and foremost, by the decrease in the number of statutory audits, which arose from the latest changes in the Auditors Activities Act.

The total hourly rates for all audit firms increased by 7%, but there are some differences between the type of service (audit or review) and the service provider (large, medium or small audit firm). The biggest increase of hourly rates can be seen in the provision of audit services by large audit firms (+ 9%; 39,8€->43,3€), the smallest increase in prices is noted in the provision of review services by small audit firms (+ 2%; 45,8€->46,5€ ). Let’s take a closer look at the three main reasons behind the increase: market changes, an increase in input prices and an increase in regulations.  

First, the market for assurance services has changed as a result of the cessation of mandatory audits of small public limited liability companies that came into force in autumn 2017. As a result, only medium and large public limited companies remained as objects of auditing, and the control of their reporting is more complicated and therefore more costly.

Secondly, as the provision of audit firms’ services is based on the skilled and experienced labor force, the overall wage growth in Estonia is also influencing the cost base of audit firms. However, a significant increase in such an input price will, in turn, be passed on to customers as consumers of services.

Thirdly, since auditing firms operate on a strictly regulated market, the number of these activities and procedures is directly dependent on the content of the regulatory acts and standards, their amendment, and their implementation. As this area, which is governed by the Ministry of Finance, has been further regulated in recent years, auditors need to take this into account in their practices. All in all, the state will have greater assurance and the customer will receive more reliable, higher-quality service, but at a higher price.

As the 2018/19 auditing season has already commenced, we can predict the continuation of several trends that characterized the previous period - the proportion of other services is growing among the services of audit firms, and the price increase continues in the assurance services segment, as at least two of the three processes affecting input prices in the 2017/18 period will continue in the 2018/19 period.

Source: Audiitorkogu