Audit Fee Report

The way in which audit committees discharge their fiduciary duties and approach issues such as audit quality has a direct impact on the level of audit fees. The report “Audit Fees Paid by Listed Companies in Hong Kong in 2020/2021” (the Audit Fee Report) provides an analysis of the audit fees paid by listed companies and analyses what effects, if any, COVID-19 and the ensuing economic downturn have had on the market.

Key findings include:

1. Total audit fees in Hong Kong in 2021 were HK$13.1 billion, representing a compound annual growth rate (CAGR) of 6.0% from 2010.
2. On a per engagement basis, average and median¹ audit fees were HK$5.4 million and HK$2.1 million respectively in 2021. When adjusted for inflation, average and median fees show a decline of 20% and 10% respectively since 2010.
3. Even though the level of audit fees typically reflects the level of complexity in the underlying business, in Hong Kong, growth of average audit fees significantly lags behind the growth experienced by listed companies. Between 2010 and 2021, the average total assets of listed companies in Hong Kong increased by 91%, and average revenues by 67%, but average audit fees only by 9%
4. For local Category A PIE auditors², their market share has been in decline since peaking in 2019. This is irrespective of whether such market share is measured by way of audit fees or number of engagements.
5. There is a strong association between a change in auditors and a subsequent reduction in audit fees. In 2020 and 2021, the number of listed companies which changed auditors continued to increase. Out of the 249 and 285 listed companies that changed auditors in 2020 and 2021, 80.7% and 69.5% experienced a fee reduction.

¹ In the Audit Fee Report, “average” or “mean” refers to the average fees per engagement, calculated by dividing the sum of audit fees by the number of engagements. “Median” is the middle value in the data set of audit engagement fees arranged in order. Both are indications of the typical fees paid, although the median value is less affected by outliers than the average.

² Category A PIE auditors are auditors with more than 100 PIE audit engagements; Category B PIE auditors are auditors with 10 to 100 PIE audit engagements; and Category C auditors have one to nine PIE audit engagements.