How do auditing firms get audited?

In any big Audit firm, you will note that there are "Audit Partners" and there is a tax and advisory division. The tax and advisory (and all other non-audit lines of service) will be typically formed under a limited liability company (or equivalent). The audit practice will be a "Partnership".This comes from age old policy that Lawyers and Accountants/Auditors cannot have limited liability for giving wrong advise/assurance to third parties.Coming to the current times, most country legislation still require audit firms to be a partnership of the audit partners.Since it is a partnership, there is no legal requirement for it to be audited.The partners are however liable for their personal income tax and may be audited by the tax authority (IRA/IRS) personally.Large audit firms however do get checked by the licensor of the firm's brand name. eg Individual PWC, KPMG, EY and Deloitte do have to comply with some financial guidelines internally to be able to retain the brand name, and hence these KPIs are monitored. it is not anywhere near a full audit that private companies face

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Auditors

Of the top 20 firms that responded to our survey, only five either had noauditors as they are partnerships or recent conversions to LLPs.

Top of the list, with an expertise in professional service firms, is HorwathClark Whitehill with three audits. Grant Thornton also has three (though youwould expect that), Kingston Smith and PwC have two audits and the rest havejust one.

Cost

The Big Four pay around £300,000 for their audits. Thereafter, the figuresdrop away slightly, with BDO paying PwC £200,000, Grant Thornton paying PKF£152,000, Smith & Williamson paying Deloitte just a shade over £300,000 andVantis paying £226,000 to auditors E&Y.

The rest of the top 20 pay less than £100,000.And like the market for major companies, the fees seem to have soared in thepast year or two. Excluding Horwath Clark Whitehill, whose auditors carried outminimal work for the previous year and therefore are not comparable, thenation’s audit firms are paying 14% more for their audits than they were on theprevious year they reported.

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