The Benefits of Fixed Fee Audit Engagements

            There's a debate in the accounting world concerning the use and speculation of fixed fee audit engagements; when an auditor and a client agree to a fixed fee before performing the audit (5). Many people believe that these type of engagements can be beneficial both to the firm and the client, as breaking free from hourly billing potentially shows signs of a firm's confidence in the engagement. While there are others who still believe that fixed fee engagements can lead to a series of issues in an audit engagement such as the fee being inadequate to properly perform the audit according to procedures as well as slandering a firms integrity. After doing some research on the topic, I believe that fixed fee audit engagements can be beneficial to the firm as well as the client if done correctly and with the utmost of integrity. .
             Many of times audit engagements are chosen by clients through a bidding process. The bidding process consists of multiple firms who compete in a "price war " to perform a client's engagement. The price war can be between the amount per hour that a firm will charge or the fixed fee that a firm will charge to complete the audit in full (assuming no major complications). In most cases, the lowest bid is the one the client picks to do the audit. But what does that price boil down too? There are many factors that go into how that price is ascertained. The biggest facet of an auditing fee is the hourly labor attributed towards the engagement. "Other important factors typically identified by practitioners include the number of site visits required to conduct the audit, the quality of the personnel required to assess the relevant items, the quality of the client, the types of items requiring auditing, the level and quality of internal auditing conducted by the client, and the number of years the auditing firm has been associated with the client." .
             Seeing what goes into obtaining an amount for an audit fee, one must now ask is it feasible to predict these things and estimate an amount to charge a fixed fee for the engagement.