A recent paper examines the effect of an investment company retaining the same auditor used by its parent company. The authors found that the median audit fee for an investment company with a shared auditor was $71,099 compared to $48,089 for those that do not share auditors. The authors suggest that this may be explained by “either shared auditors charg[ing] a premium for their specialized knowledge about the trust and/or its parent or trustees demand[ing] additional audit effort from shared auditors in order to compensate for concerns about ineffective monitoring.” Further, the authors hypothesize that the higher fees may be driven by a higher level of complexity as investment companies with shared audits tend to have a higher average percentage of assets under management in international and alternative funds.
Investment companies with shared auditors make back some of that difference in lower non-audit fees ($24,348 average for shared auditors compared to $37,832), according to the study. The authors found that investment companies with shared auditors also tended to pay lower advisory fees (a median of 51 basis points compared with those that did not share a median of 60 basis points).
The study revealed some characteristics about investment companies who tend to share auditors and their boards. For example, trustees of shared auditor funds were more likely to have a shorter tenure, have higher ownership in the funds they oversee, have more outside directorships, be retired, and be male. Additionally, boards of funds without shared auditors were more likely to be composed of only independent members compared to those with shared auditors. The authors found that shared auditors were more common “when the parent exhibits high accounting quality and has more experience with mutual fund accounting.”
The study also shows the corner that the “Big 4” audit firms have on the market. All funds that use a shared auditor and 98.8 percent of those with a separate auditor utilize one of the “Big 4” firms for audits.