The Big Four’s dominance of the U.K. audit market has grown even further in the past year, according to the Financial Reporting Council’s latest report.
The latest “Key Facts and Trends in the Accountancy Profession” report by the FRC revealed that the world’s largest audit firms—EY, KPMG, PwC and Deloitte—increased their combined total fee income by 4.7 percent in the past year to £10.95 billion (U.S. $14.1 billion), with audit fee income growing by 1.7 percent to £2.1 billion (U.S. $2.7 billion).
A Big Four firm now audits every FTSE100 company in yet another sign of their strangehold on the industry in the U.K.
By contrast, total fee income at audit firms outside the Big Four, which includes BDO and Grant Thornton, fell by 8.1 percent overall, with audit fee income falling by 6.3 percent (compared to a 3 percent increase in 2016/17).
Concerns about a lack of competition—as well as suspicions the lack of available choices may result in “cozy relationships” between audit firms and their clients and poorer audit quality—have been raised for decades but with seemingly little effect or appetite by government to change the status quo.
In April, the U.K.’s Competition and Markets Authority (CMA) published several controversial recommendations to loosen the Big Four’s stranglehold on auditing the country’s top-listed companies, the key one being to effectively bar FTSE companies from being able to use a Big Four audit firm as their sole auditor.
Instead, under the proposals, if large companies wanted to use either PwC, KPMG, Deloitte, or EY as their auditor, they would need to use a joint auditor arrangement whereby a smaller-tier firm would do some of the work (and be jointly liable for the results).
To avoid using two firms, a FTSE-listed company would need to choose a challenger audit firm—meaning an auditor outside of the Big Four—to act as its sole auditor (if mid-tier firms are prepared to take on the work, that is).
The CMA also recommended splitting audit firms into two distinct entities—one providing audit work, the other providing consultancy services—as well as regulating audit committees more vigorously regarding the basis upon which auditors are appointed and how they scrutinise their work and findings.
The government closed its consultation on the CMA’s proposals on 13 September. It plans to unveil new proposals to reform the audit market—as well as supervision of it—later this year.