The Big Four audit firms have pushed all competition out of the FTSE 100 audit market in the last 12 months as BDO and Grant Thornton both lose top tier audit client ranking, reports Accountancy Daily.
With audit fees now hitting £705m, up 5.6% year on year from £667m, and with a total value of £910m when audit related fees are included, attempts at creating a competitive audit market fail to show any signs of progress.
In this year’s exclusive Accountancy Daily FTSE 100 Auditors Survey, PwC is the largest UK auditor, handling nearly a third of these listed audits with 29 clients valued at £222m. But it is also the biggest loser, dropping five FTSE 100 clients in the last 12 months, with a 14% drop in revenue.
Deloitte has picked up £90m in new audit business in the last year and is edging closer to number two auditor KPMG, with £162m in total revenue versus KPMG’s £178m. EY dropped one client and reported £143m in audit fee income.
The audit market is facing increasing scrutiny over the lack of competition from non-Big Four players, while there are signs that audit fees are set to increase exponentially in the next three years, as firms realise that low-balling fees to win business has backfired and now firms are taking a more realistic stance when pricing their audit work.
Our analysis of audit fees shows that Rolls-Royce saw its audit fee increase by 20% when it switched from KPMG to PwC, while Reckitt Benckiser reported a 44% hike in its fees after it had replaced PwC with KPMG.
The 10-year audit tender rules, first introduced under the FRC’s ‘comply or explain’ approach and now statute under the Audit Regulation and Directive (ARD), have also had a major impact with the average length of audit tenure standing at nine years.
‘We are coming to the end of the first cycle of audit tenders and are not far away from the next cycle,’ says Hywell Ball, UK head of audit at EY. ‘The volume of tenders this year has been lower, though we know that companies are now looking two to three years ahead.’
This second wave of audit tenders is giving the challenger firms, including BDO, Grant Thornton and Mazars, some degree of optimism that there may be a chance that they can begin to break through.
Guy Stafford, chief client officer at Proxima told Accountancy Daily: ‘Grant Thornton and BDO have been successful in bulking up and have more visibility in this market than they did five years ago, though not necessarily in audit services. But it does give them the relationships, and the more relationships they have, the more optimistic they should be of winning some audits.’