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The Big Four auditors earn 98% of audit fees for the largest UK companies while clients face soaring costs with prices up 27% in a single year

While 13% of FTSE 350 audits are carried out by mid-tier and challenger audit firms, these account for only 2% of total audit fees at £28m.

The total accumulative audit fees for the FTSE 350 was £1.4bn in 2023, but 98% of these fees were earned by the Big Four of PwC, Deloitte, EY and KPMG. They continue to dominate audit with an 87% market share.

Mid-tiers have only grown their share of audit business by 2% in the previous year from 11% in 2022. BDO and Forvis Mazars earned just over 4% of total listed audit fees each, while the remaining 2% was split between the remaining firms, showed analysis from the Financial Reporting Council (FRC).

PwC pipped Deloitte to the top spot in terms of audit earnings, accounting for 27% and 26% respectively of total FTSE 350 audit fees. BothEY at 19% and  KPMG at 18% lost ground in terms of market share.  

Meantime, companies are paying significantly higher costs for their audits as total fees earned by audit firms hit £1.4bn in 2023, up a staggering 27% from £1.1bn in 2022.

The FRC acknowledged growing concerns from companies about rising audit fees, stressing that some of the reasons for the recent hike in fees was down to ‘significant changes to IFRS accounting standards which created more work for auditors’ in the latest audits. It also pointed to growing costs for audit firms from wage inflation and investment in technology.

However, client companies are also responding to the hike in audit fees with a number of FTSE and AIM listed businesses swapping auditors, citing rising costs as a key factor.

There was a pickup in the number of audit tenders with 23 FTSE 350 companies changing auditor in the last year, but 94% merely swapped their Big Four auditor. Only three audits switched from one of the Big Four to a mid-tier firm. In 2022, there were fewer tenders than in previous years with only 17 audits changing hands.

The fact that just over one in 10 audits were handled by smaller firms highlights the glacial progress towards a more competitive market, despite efforts by the audit regulator to address stakeholder concerns such as differences in quality between the largest and smaller audit firms.

The FRC said its approach focuses on ‘ensuring good quality audit services are accessible to UK companies of all sizes’ and is using an audit firm ‘Scalebox’ to help smaller audit firms expand their audit share while developing and maintaining audit quality at the same time.

In terms of wider efforts to increase competition, the FRC stressed: ‘The primary aim of our competition policy is not about growing another firm so it can rival the Big Four. Growing a firm to rival the Big Four would be very difficult to do.

‘Forming an audit firm with a size, by PIE audit fee income, the same as the smallest of the Big Four – EY – is the equivalent of combining the next eight largest audit firms.

However, there is little indication that the audit market will change any time soon, with the audit regulator being very cautious about prospects for the future.

‘The existing issues are deep-seated and the market structure is heavily entrenched. It will take time – perhaps some considerable time – to realise a well-functioning audit market,’ the FRC warned.

In 2023, the challenger firms with the largest growth in audit income were BDO, RSM and Forvis Mazars, with an average increase of 22%. Grant Thornton had the lowest growth, with a 15% increase on the previous year, although the firm has to build up its listed audits after withdrawing from the market a few years ago and not re-entered the listed market until recently.

Richard Moriarty, CEO of the FRC, said: ‘Whilst the Big Four continue to dominate the market for the audits of the largest UK businesses, in the last 12 months other audit firms have successfully grown their businesses and they are now taking on more complex audits.

‘This report underscores our commitment to ensuring the whole market works as effectively as it can.’

Writes Sara White in Busienss Accountancy Daily

ACCA, the Association of Chartered Certified Accountants, will celebrate 120 years since its creation this weekend (30 Nov- 1 Dec).

Founded in London by a group of eight accountants on 30 November 1904, it has since grown into a global network of more than 252,500 members and 526,000 future members across 180 countries.

“By staying true to our founding value of inclusion, ACCA has become a truly global organisation, working for the public good. When ACCA was founded in 1904, nobody could have predicted how much we’d achieve. Our story has been one of innovation and growth. But above all, it’s a story of more people’s careers launched, lives transformed, and many dreams come true,” says ACCA president Ayla Majid.

‘We have an amazing community of talented and committed members around the world undertaking successful careers and making positive and sustainable impact on countless businesses, organisations and communities, creating huge benefits for the global economy.’

The election of Ayla Majid to the office of president at the recent AGM, along with Melanie Proffitt as deputy president and Datuk Zaiton Mohd Hassan as vice president, makes this the first time in ACCA’s history that women have held all three officer posts at the same time. It’s another milestone for the professional accountancy body, which was the first to admit women to membership in 1909.

“2024 has truly been a landmark year for us. In May our membership numbers exceeded a quarter of a million. In September we launched our new Professional Diploma in Sustainability,” says Helen Brand OBE, chief executive of ACCA.

“And earlier this month we were recognised with a special nomination in the international category of the UN Trade and Development International Standards of Accounting and Reporting (ISAR) Honours 2024 which recognised our work to improve reporting and skills capacity building on sustainability.

Writes Rachel King in Accountancy Age

In a series of meetings and panel discussions, ACCA is raising awareness of how adoption of sustainability disclosures is driving investment in sustainable businesses

Global ccountancy body ACCA is pushing for adoption of sustainability reporting standards at this year’s COP29 in Azerbaijan.

In a series of meetings and panel discussions, ACCA is raising awareness of how adoption of sustainability disclosures is driving investment in sustainable businesses and the net zero transition, and the “urgent need” for this to speed up and become universal.

It is also highlighting the need for more professional skills capacity in sustainability. The skillset of the accountancy profession is broadening to embrace sustainable business, finance and reporting, ACCA says.

At the same time the accountancy body is ensuring that delegates to the UN Climate Conference are aware of the “vital” role that small and medium sized businesses (SMEs) have in ensuring that business moves to Net Zero. 

Vikas Aggarwal, regional head of public affairs for Europe, Eurasia, Middle East and the Americas, ACCA, said: “It’s crucial that SMEs – the backbone of supply chains and economies across the world – aren’t forgotten in the journey to Net Zero. But they face huge challenges, including accessing sustainable finance and a lack of the professional skills needed to adopt sustainable business models.”

Previously, ACCA has led the accountancy profession in taking action on climate change including sharing best practice, creating knowledge hubs, and building world-leading education and learning opportunities and providing guidance and toolkits on sustainability reporting. 

At COP16, the UN Biodiversity Conference which took place earlier in November, ACCA launched the “Empowering business: navigating nature-related reporting” report, calling on accountants to understand the concepts, principles, challenges and opportunities of nature-related reporting.

Now, as COP29 opened, ACCA published the “Weathering the storm: building resilience against climate disruptions” report which outlined how “unprepared” businesses are for climate-related disasters.

Aggarwal added: “Financial professionals are in no doubt that huge investment is needed in clean energy and sustainable business. Part of ACCA’s role is to explain and amplify that message to business and government.

“That is why we were so pleased to be part of the discussion at COP29 Azerbaijan set up by the Global Capacity Building Coalition of which ACCA is a supporter member.

Over the week it has been highlighted how resilience will be key, as explored in our new report, Weathering the storm. A focus on skills development is crucial; we’ll continue to work urgently to play our part because the critical need is to take action.”

Article apperad in Accountancy Today