IRBA Accredited Registered Auditors in Cape Town

Most businesses in South Africa ask the same question when they hear the word “audit”: “What is this actually going to cost us?” Audit fees are not one-size-fits-all. They depend on the size, complexity and risk profile of the engagement, as well as the work effort required to perform a quality audit.

This article explains the main factors that influence audit fees so you can understand how quotes are put together and what you can do to manage costs without compromising quality.

1. There is no single “standard audit fee”

An audit fee is the remuneration charged by auditors for the time and expertise needed to perform an audit in accordance with the applicable standards.

In practice:

• Audit fees are usually based on the expected hours at different staff levels, multiplied by charge-out rates, and adjusted for complexity and risk.
• Fees should be sufficient to allow auditors to perform the necessary work and maintain audit quality.
• Reasonable fees support the auditor’s ability to obtain appropriate evidence and issue a reliable opinion.

This is why two entities of similar size can still receive different quotes: the underlying work effort is not identical.

2. Six factors that drive your audit fee

1) Size of your business and transaction volume

Client size is one of the most important determinants of audit fees.

In practical terms:

• Larger entities tend to have more transactions, accounts and systems to audit.
• Higher revenue, more assets and more staff usually translate into more work across areas such as revenue, inventory, receivables, payables and payroll.
• Even within SMEs, fast-growing businesses often require more audit effort than very small, simple entities.

The fee usually moves in line with the audit hours required to cover all relevant areas at an appropriate level of depth.

2) Complexity of your structure and operations

Beyond sheer size, complexity is another major factor.

Complexity can come from:

• Multiple entities or subsidiaries, group structures and consolidations.
• Operations in more than one location or business line.
• Significant estimates and judgments, for example impairment, provisions or fair value measurements.
• Specialised industries with specific regulatory or reporting requirements.

Higher complexity typically requires more senior involvement, more planning and more procedures, which increases the overall effort.

3) Quality of your accounting records and reconciliations

The state of the client’s records and internal processes affects audit effort and, therefore, fees.

In practice:

• Well-maintained records, timely reconciliations and clear audit trails make it easier for auditors to obtain evidence.
• Missing documentation, late adjustments and unresolved differences can require additional work to resolve before the audit procedures can even start.
• Frequent year-end “clean-up” work outside agreed scope may lead to discussions about additional fees.

This is one area where management can directly influence future fees by improving record-keeping and internal processes.

4) Strength of internal controls and risk profile

Assessed audit risk and the quality of internal controls are important determinants of audit fees.

From an audit planning perspective:

• Strong, well-designed and implemented controls can allow auditors to place some reliance on those controls, potentially reducing the need for extensive detailed testing in certain areas.
• Weak or poorly documented controls, significant fraud risk or a history of misstatements often mean more substantive work and more hours.
• Entities operating in higher-risk environments or with complex IT systems may require specialist input.

The aim is not to “penalise” risk, but to ensure that the level of work matches the risk profile.

5) Reporting frameworks and regulatory environment

Different reporting frameworks and regulatory contexts can also have an impact.

Examples include:

• Entities preparing financial statements under more complex frameworks may require additional technical work.
• Regulated sectors may have additional reporting or compliance requirements.
• Audits performed on behalf of certain public bodies are sometimes subject to specific fee guidelines or charge-out structures.

These factors influence both the amount and the nature of audit work.

6) Timing, deadlines and other practical considerations

Timing and practical constraints can also influence pricing.

In practice:

• Very tight deadlines or audits scheduled in peak season may require increased staffing or overtime.
• Requests for significant scope changes or additional reporting after the engagement has been planned can increase work effort.
• In some cases, audits that involve extensive travel or work across many locations can have different cost profiles.

Clarifying timing and expectations upfront helps keep fees aligned with the initial quote.

3. How auditors typically build an audit fee

While each firm has its own approach, the process is broadly similar.

Step 1: Assess the engagement

• Understand the entity’s size, complexity, risk profile, reporting framework and regulatory context.
• Consider whether specialists or additional resources are required.

Step 2: Estimate hours by staff level

• Plan expected hours for partners, managers and staff based on prior experience and the upcoming year’s circumstances.
• Factor in planning, fieldwork, supervision, review and reporting.

Step 3: Apply charge-out rates

• Use internal charge-out rates that reflect the cost of staff and partners, as well as overheads needed to maintain quality and compliance.

Step 4: Discuss scope and assumptions with the client

• Explain what is included in the fee and what assumptions it is based on.
• Agree how additional work, if needed, will be handled.

This process is intended to link the fee directly to the work needed to perform a quality audit.

4. How your business can help manage audit costs responsibly

Without undercutting quality, there are practical steps businesses can take to help keep audit fees under control:

• Maintain good records throughout the year
  Keep invoices, contracts, bank statements and supporting documents organised, and perform reconciliations regularly.
• Address known issues early
  Discuss unusual transactions, new funding structures or major changes with your auditor ahead of year-end so they can be planned properly.
• Agree scope and timelines clearly
  Confirm what is included in the fee, when information will be ready and how long fieldwork will take, and avoid compressing timelines unnecessarily.
• Use management letters constructively
  Work through prior-year recommendations on controls and processes to reduce risk and, over time, audit effort.

These steps also tend to improve the quality of internal information, which benefits management beyond the audit.

5. Why “too cheap” can be risky

Fees must be sufficient to support the work required to issue a quality audit report.

If a fee is significantly lower than what would be expected given your size, complexity and risk profile, it is important to:

• Ask how the firm plans to cover all required areas within that budget.
• Confirm that the work will still be performed in line with the applicable auditing standards.
• Understand whether the quote is based on realistic assumptions about the state of your records and controls.

The goal is not to suggest that higher fees always mean higher quality, but to recognise that quality audits require adequate time and resources.

6. Getting an audit quote that fits your situation

When you request an audit proposal, you can help the process by providing:

• A brief description of your business and activities.
• Recent financial statements or management accounts.
• Information about group structures, locations and key systems.
• Any regulatory or stakeholder requirements that may affect the engagement.

This allows the auditor to tailor the scope and fee to your circumstances and to explain how each of the factors above influences the quote in your case.

Frequently asked questions

Is there a typical audit fee range for small businesses?

There is no single standard fee because audit pricing depends on size, complexity, risk and work effort. Similar-sized entities can have different fees if their structures, records or risk profiles differ.

Do auditors charge by the hour or a fixed fee?

Many firms use a fixed fee based on estimated hours at different staff levels, while others may use hourly billing or a hybrid. In all cases, the fee should reflect the work needed to perform a quality audit.

Can our audit fee go down over time?

In some cases, fees may stabilise or decrease if the business becomes more efficient, records improve and prior-year issues are resolved. Major growth, complexity or new requirements can have the opposite effect.

Is it risky to choose the lowest audit quote?

A low fee is not necessarily a problem, but it is sensible to understand how the firm will carry out the required work within that budget. Quality audits require sufficient time and resources.

Receiving a letter from SARS saying your return is “selected for verification” or “subject to audit” can feel intimidating, but it is a normal part of the tax system. Understanding the difference between verification and audit, the steps SARS follows, and your responsibilities can help you respond calmly and correctly.

1. Verification vs audit: what SARS means

Verification: face-value check of your return

SARS often starts with a verification, which is a face-value check of the information declared on your tax return or declaration.

In a verification:

• SARS compares the amounts you declared with your supporting documents and/or third-party data, for example IRP5s, medical aid, retirement annuity and other reports.
• You receive a verification letter listing the documents SARS wants and giving a deadline, often 21 business days.
• SARS aims to finalise the verification within a set period after receiving all documents, depending on tax type and complexity.

A verification is focused on confirming that what is on your return matches your documents. If issues arise, SARS may adjust your assessment or decide that a more detailed audit is required.

Audit: deeper examination of your tax affairs

An audit is a more detailed examination of your financial and accounting records and supporting documents to determine whether you have correctly declared your tax position.

In an audit:

• SARS can review multiple periods, income streams and tax types.
• You receive a Notification of Audit letter and, usually, a separate request for further material.
• SARS provides progress reports at intervals and the audit can take several months for more complex cases.

Both verification and audit fall under SARS’s powers in the Tax Administration Act to select taxpayers for inspection, verification or audit on a risk basis or even randomly.

2. How SARS communicates and what the letters mean

Notification and request for documents

For both verification and audit, SARS will communicate via official notices, typically:

• A letter stating that your return or declaration has been selected for verification or for audit.
• A list of “relevant material” (supporting documents and information) that you must submit, and the due date.

You may be asked to submit documents via:

• eFiling (upload facility).
• The SARS Online Query System.
• A booked appointment and document submission at a SARS branch.

It is important to read the letter carefully to understand:

• Which tax type and period the verification or audit relates to.
• Exactly what documents SARS has requested.
• The deadlines for submission and response.

Progress updates and outcome letters

Once you have submitted all requested material:

• For verifications, SARS generally aims to finalise within a specified number of business days after receiving everything, although complex cases may take longer.
• For audits, SARS may issue progress reports at defined intervals and ultimately a Finalisation of Audit letter setting out the outcome.

If SARS makes changes to your assessment, you will receive an adjusted assessment notice, and normal objection and appeal processes will apply if you disagree.

3. Common triggers for verification and audit

SARS can select any taxpayer, but certain patterns commonly lead to verification or audit:

• Large or unusual deductions, for example travel, medical or business expenses.
• Mismatches between your return and third-party data.
• Significant VAT refunds or sudden changes in trading patterns.
• Reporting business, rental or freelance income.
• Claims for certain rebates or incentives.
• A history of non-compliance or previous understatements.

There are also random selections as part of SARS’s broader compliance programme, so being selected does not automatically mean SARS believes you have done something wrong.

4. What to do immediately when you receive a SARS letter

Step 1: Read the letter carefully and stay within deadlines

When you receive a verification or audit notification:

• Confirm which tax type and period are affected, for example income tax 2025 or VAT for specific months.
• Note the due date for submitting documents or responding.
• Check exactly what SARS is asking for, such as IRP5s, bank statements, invoices, contracts or tax computations.

Missing deadlines or providing incomplete information can lead to additional assessments and, in some cases, penalties.

Step 2: Gather and organise relevant material

Typical documents SARS may request include:

• Financial statements and trial balances.
• Bank statements for relevant periods.
• Invoices, receipts, contracts and supporting documents for income and expenses.
• PAYE and payroll records.
• Supporting certificates such as IRP5s, IT3s, medical aid and retirement contributions.
• Schedules for specific deductions or allowances.

Organise documents clearly, for example by month or by category, so SARS and any advisors can follow your explanations more easily.

Step 3: Consider involving your auditor or tax practitioner

Many businesses choose to involve a registered auditor or tax practitioner to:

• Help interpret SARS’s request and check that all relevant material is included.
• Ensure explanations and schedules are prepared clearly.
• Assist in managing correspondence, especially if there are complex issues or potential adjustments.

This can be particularly useful if multiple periods are under review or if you have significant business, rental or international transactions.

5. During the audit: rights and responsibilities

Your responsibilities

During a verification or audit, SARS expects taxpayers to:

• Keep and provide relevant records, typically for at least five years after the submission of the return.
• Submit all requested documents and information within the specified timeframes.
• Respond to follow-up requests and clarify items where SARS has questions.

Failure to provide requested material can result in SARS disallowing claims or issuing assessments based on the information available to them, which can be less favourable.

Your rights

At the same time, taxpayers have rights, including:

• To be notified in writing before an audit starts.
• To know which tax periods and tax types are under audit.
• To receive reasons for adjustments and an opportunity to respond.
• To object and appeal through the normal dispute resolution process if they disagree with the outcome.
• To seek professional assistance, such as an auditor, tax consultant or legal advisor, at any stage.

Guidance for taxpayers and registered auditors also discusses how SARS should request access to audit files and working papers and how such access is managed within the framework of the Tax Administration Act.

6. After the audit: possible outcomes

A verification or audit can lead to several outcomes:

• No changes – SARS is satisfied and issues a completion or finalisation letter.
• Adjusted assessment – SARS changes your tax due or refund based on their findings.
• Penalties and interest – For understatements or non-compliance, SARS may levy understatement penalties and interest, with levels depending on the nature of the error and the taxpayer’s behaviour.
• Further investigation – In serious cases, matters may be referred for further investigation.

If you disagree with the outcome, you normally need to:

• Request reasons, if needed.
• Lodge an objection within the prescribed timeframes, supported by documents and explanations.
• Follow with an appeal or alternative dispute resolution if required.

Professional assistance is often useful at this stage to ensure that your rights and obligations are properly balanced.

7. How to reduce stress next time

Even though no one can guarantee avoiding a SARS verification or audit, you can make the process smoother by:

• Keeping your accounting records and supporting documents complete and well-organised for at least five years.
• Reviewing your returns carefully before filing, or having a professional review them.
• Ensuring that high-risk areas, such as VAT, PAYE, business expenses and allowances, have clear documentation.
• Responding promptly and fully to any SARS letters.

For many businesses, working with a registered auditor or tax practitioner as part of a broader tax risk and compliance approach helps turn a SARS audit from a crisis into a manageable process.

Frequently asked questions

Is a SARS verification the same as a tax audit?

No. A verification is a face-value check of your return against supporting documents and third-party data, while an audit is a more detailed examination of your financial records and tax affairs that may cover multiple periods or tax types.

How long does a SARS audit or verification usually take?

Timeframes vary. Verifications are often finalised within a set number of business days after you have submitted all requested documents, while audits can take several months, especially for complex or multi-year cases.

Do I need a tax practitioner or auditor if SARS audits me?

You are not required to use a practitioner, but many businesses choose to do so. A registered tax practitioner or auditor can help interpret SARS’s requests, prepare responses and assist if you need to object or appeal.

Can SARS audit previous years that are already “done”?

Yes. SARS may audit previous years within the prescription periods allowed by law, and in some cases longer where there has been fraud, misrepresentation or non-disclosure of material facts.