The Perceived Effects of Fixed Fee Audit Billing Arrangements

Audit partners working for Big 6 accounting firms were surveyed to investigate the changes in the usage of fixed fee billing arrangements over the last decade and to examine the perceptions of audit partners of the positive and negative effects of fixed fee billing arrangements and audit firms' responses to those effects. Overall, the results indicate that most audits are billed with a fixed fee arrangement. Unfortunately, many of the study's responding partners believe fixed fee arrangements tend to institutionalize audits as being a commodity and threaten the quality of audits performed and the financial stability of CPA firms. However, many respondents beleive that the negative effects of fixed fee arrangements can be overcome if CPAs recognize the problems associated with such arrangements and work to overcome those problems. The results suggest that many CPAs are doing the exact opposite. Some auditors are now performing only those minimum audit services required to complete the fixed fee audit and to render an opinion.