The big four auditing firms – Deloitte, EY, KPMG and PwC – have maintained their grip on the FTSE 100 audit market despite efforts by regulators to increase competition, according to new data released today.
The Financial Reporting Council (FRC), the UK’s financial reporting watchdog, wants to open up the market for audit services and today published figures showing ‘challenger firms’ – those outside of the big four – have increased their share of FTSE 250 audits from 4.8 percent to 7.6 percent over the last year.
But FTSE 100 companies continue to rely exclusively on the four giant professional services firms to conduct their audits, says the FRC.
‘It is encouraging that the challenger firms have increased their share of the FTSE 350 audit market, albeit from a low base. [But] it is clear the big four continue to dominate the FTSE audit market,’ says Jon Thompson, the FRC’s CEO, in a statement.
‘Improving competition across the audit market and ensuring audit firms focus, above all else, on delivering high-quality audits is essential to improving trust in audit and corporate governance and remains a key priority for the FRC.’
The data comes amid a consultation by the UK government on major changes to the audit industry and corporate governance requirements, which include proposals to ‘unleash competition in the audit market’. The review was spurred by the collapse of several British businesses in recent years, such as Thomas Cook, Carillion and BHS.
Among a variety of measures, the consultation suggests making larger companies work with challenger firms on their audits, capping the number of FTSE 350 clients for each member of the big four, and launching a new regulator to replace the FRC: the Audit, Reporting and Governance Authority, which would have new powers.
The proposals also focus on disclosure requirements for UK companies. For example, they suggest requiring directors to publish annual ‘resilience statements’ that explain how the business is managing short and long-term risks.
In a response to the consultation released last week, the Institute for Directors, which represents business leaders, warned against a ‘step into the unknown’ with regards to shared audits. The lobby group said it was worried about ‘the willingness and capacity of smaller challenger audit firms to take on major audits in partnership with the big four audit firms’.