BDO grows junior market auditing lead over Big Four

12 November 2018

The UK’s sixth-largest audit firm has reportedly extended its lead as the UK’s top auditor of mid-size, Alternative Investment Market firms. Over the last half of 2018, BDO has more than quadrupled its lead on its nearest rival, KPMG, illustrating a fall in favourability for the Big Four among the mid-sized auditing market of Britain.

The UK’s audit market has come under heavy scrutiny in 2018, with the spectre of Carillion, alongside a host of other high-profile accounting blunders looming large over the industry, particularly in the case of the Big Four. Deloitte, EYKPMG and PwC collectively audit some 97% of firms in the FTSE 350, while hosting growing consulting wings, which critics suggest have led to conflicts of interest similar to one which brought about the downfall of the US’ largest energy company, Enron, in the early 2000s. In a bid to avoid such a scenario occurring in the future, an impending investigation by the Competition and Markets Authority will explore how competition can be improved in future.

However, while the Big Four’s dominance of the FTSE rankings is far-reaching, it is not all-encompassing when it comes to the audit market as a whole. Indeed, new data from Adviser Rankings has revealed that BDO, the UK’s sixth largest auditing and advisory firm, now has 149 clients listed on the Alternative Investment Market (AIM) index, 23 more than its closest competitor, KPMG. Over the past two quarters, this gap has broadened significantly from five clients – and potentially exposes a backlash against KPMG, whose auditing was subject to an unprecedented censure from the Financial Reporting Council in 2018, as well as the Big Four as a whole.

BDO grows junior market auditing lead over Big Four

As seen in the top table of audits, members of the AIM are no strangers to swapping out one of the Big Four for another auditor. This was recently illustrated by Scisys, which traded KPMG for EY in October. With the mounting pressure on the Big Four, however, the growing gap between BDO and the chasing pack in the AIM market suggests firms are now more willing to give another auditor a shot. BDO also now matches Big Four firm EY for clients among the FTSE AIM 100, with 11 apiece, and has narrowly taken second place by market cap, knocking KPMG from the spot, though PwC pulled away at the top as the auditor with the highest total AIM client market cap.

Commenting on the results to City A.M., Scott Knight, Head of Audit at BDO, said, “We are delighted to have further stretched our lead in advising AIM-listed companies. Being number one auditor and reporting accountants on AIM is really important to us. This is our client heartland – AIM companies and companies that aspire to grow by access to markets like AIM – ambitious, entrepreneurially-spirited mid-sized businesses which are the UK’s economic engine.”

It is not the only area in which BDO has enjoyed success in recent months. Earlier in October, the professional services firm released annual results which showed an underlying revenue of £464.1 million, which represented an increase of 8.5% compared with the previous year. Profits meanwhile rose by 19.7% to £109.4 million, which the firm said allowed it to invest in tech and recruitment. At the same time, Grant Thornton also reported an increase on profits, further reflecting the potential of other larger auditing and advisory firms to present a viable alternative to the Big Four.


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Deloitte wins CRH role from Big Four rival

14 March 2019

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.