Big Four auditors' fees boosted by continued UK blue-chip dominance
The world’s Big Four accounting firms increased earnings from their dominance of UK blue-chip audits last year, the sector’s regulator said on Friday, indicating that efforts to improve competition have made little headway.
Lawmakers have long called for more competition in auditing, but actual reforms have been patchy to date despite three government-sponsored reports considering the issue since the collapse of retailer BHS and builder Carillion.
All of the companies listed on the FTSE 100 index were audited by Deloitte, PwC, EY or KPMG in 2019, with combined income from auditing rising by 7%, Britain’s Financial Reporting Council said.
So-called challenger auditors, which include Grant Thornton, BDO and Mazars, fared little better in the next tier down for listed companies. Only 10 companies in the FTSE 250 index were audited by firms outside the Big Four, up from nine in 2018, the FRC said.
However, the watchdog said that new curbs are taking effect, citing a 21% drop in the Big Four’s fees for the more lucrative non-audit work they conduct for clients.
The curbs seek to improve auditing standards by limiting how much non-audit work can be undertaken, thereby removing a potential disincentive to auditors challenging what clients tell them.
Britain’s business ministry is expected to consult publicly on how it wants to implement recommendations from the three reports aimed at improving competition and standards.
Britain’s competition watchdog has proposed that audits are performed jointly by one of the Big Four and a challenger auditor, a step the FRC has rejected.
The Big Four’s total fee income rose 7% last year while firms outside the dominant quartet slowed the decline in their total fee income, the FRC said.
Improving choice and resilience in the market remains a major focus, said David Rule, the FRC’s executive director of supervision.