Big Four maintains dominance of FTSE 100 and 250 audits

04 June 2018 Consultancy.uk

Despite building pressure on watchdogs and UK lawmakers to break up the Big Four, the top accounting and advisory providers remain dominant in the UK auditing market after the first quarter of 2018. BDO is presently the only firm outside the Big Four to hold a client in the FTSE 100, while Grant Thornton has announced it will cease to bid for new auditing work among the FTSE 350, a process it believes costs more than it brings in.

In recent months, the largest members of the accounting and advisory world, headed by the Big Four – Deloitte, EY, KPMG and PwC – have come under mounting pressure to separate their consulting and auditing wings in the UK. Over the past five years, the Big Four’s share of FTSE 350 auditing increased from 95% to 98% despite a series of EU and UK reforms aimed at tackling a lack of competition since the 2008 financial crisis. Fears of both monopolisation and conflicting interests have both grown through 2018, meanwhile, as all of the Big Four were implicated in the collapse of Carillion.

Since then, a parliamentary report, and Stephen Haddrill, Chief Executive of the Financial Reporting Council – which oversees the British auditing market – have both hinted that the future holds a break up for the top names of the industry to avoid further such debacles. In spite of this, however, the Big Four’s grip on the top business audits in the country has steadfastly remained – with PwC remaining top dog, even after losing three FTSE 100 clients in the first quarter of 2018. Cancelling that out, PwC gained four FTSE 250 clients over the same period, bringing its total to 73 companies, according to latest Adviser Rankings' guide – produced in association with professional services firm Crowe Clark Whitehill.

Big Four maintains dominance of FTSE 100 and 250 audits

Elsewhere in the FTSE 250, KPMG lost ground to Deloitte, losing two clients to bring it level with its rival on 64 clients in the market. Completing the Big Four’s FTSE 250 presence, EY ranks fourth, with 40 FTSE 250 clients having also lost two in the previous quarter. In the FTSE 100, Deloitte retained all 23 of its clients while EY lost one and remains in fourth with 17 clients. While there is apparently some minimal change among businesses, with some moving away from the Big Four having been worried by what the future may hold, the market remains largely unmoved then, and the dominance of the Big Four stands firm.

BDO, the sixth largest accounting and advisory firm in the UK, was the only organisation not in the Big Four to audit among the FTSE 100 – retaining its only client in the top tier – but is clinging to its place at the top table, having lost a FTSE 250 client over the quarter. Elsewhere, Grant Thornton saw its position in the FTSE 250 improve by a single client, taking its total tally to six, in the same quarter that the firm announced its intent to withdraw from bidding in the FTSE 350 audit market altogether.

Grant Thornton revealed the plans earlier in 2018, citing the “competitive landscape” as a reason for the strategic decision. Tender processes for such contracts average out at a costly £300,000 per courtship, after which the firm routinely comes “a glorious second place”, according to Sacha Romanovitch, Grant Thornton’s Chief Executive.

The plans provoked further calls for state intervention to prevent the Big Four from monopolising the market – however Grant Thornton itself issued a statement recently decrying the divorcing of top auditing firms from their consulting wings, saying it “fundamentally does not believe that this is the solution to the existing systemic issues in the audit market.”

Profiles

More news on

×

Deloitte wins CRH role from Big Four rival

14 March 2019 Consultancy.uk

Big Four professional services firm Deloitte has secured a new contract as the external auditor of construction industry manufacturer CRH. The firm will replace rival EY in the role as of 2020.

Formed from a merger of Cement and Roadstone in 1970, CRH is an international group of diversified building materials businesses which manufacture and supply of a wide range of products for the construction industry. The company is incorporated and domiciled in Ireland, where it ranks as the largest Irish company.

Since 1988, the firm has been audited by Big Four firm EY; however due to the length of its tenure as well as the firm’s sizable non-audit work for CRH, it was decided the time was right to find a new auditor. In 2018 CRH paid EY £1 million in non-audit fees, representing 6% of the £17.2 million in total fees it paid to the Big Four firm for the year.

Deloitte wins CRH role from Big Four rival

In its 2018 annual report, CRH noted that the audit committee conducted a competitive tender process in which three firms were invited to apply. EY was not invited to compete in the tender process, and eventually its Big Four rival Deloitte was chosen to replace the firm as external auditor for the FTSE 100 building materials provider. The evaluation was done on a “fee-blind basis”, in which fees are negotiated after the appointment has been decided.

The new contract for Deloitte will begin from 2020 onwards. According to CRH’s report, the decision is no reflection on EY’s performance as auditor, with the company stating this “did not compromise [EY’s] independence or integrity."

“[While] the Committee appreciated the quality of the proposals presented by all the firms, it believes that the strength and experience of Deloitte’s team best met the predefined criteria it had set,” the report added.

While it is common for Big Four firms to replace one another when it comes to large auditing contracts, the switch comes at a delicate time, when the domination of the market by the quartet is under intense scrutiny in the UK. Last year, the UK’s fifth largest accounting and advisory firm Grant Thornton withdrew from bidding for FTSE 350 audit tenders, which it claimed cost the firm as much as £300,000 an attempt, while rarely yielding a new contract. The move sparked multiple calls for a competition probe, with critics suggesting the Big Four’s stranglehold was compromising the integrity of the auditing industry.