Big Four audit fees hit £10.95bn as mid-tier squeezed out

The Big Four firms have increased their grip on the UK audit market, reporting a 4.7% hike in total fee income to £10.95bn compared to an 8.1% drop at mid-tier audit firms

PwC, Deloitte, KPMG and EY now audit all the FTSE 100 companies, after Randgold Resiources, audited by BDO, fell out of the FTSE 100 earlier this year

Research from the Financial Reporting Council (FRC) showed that the Big Four increased their combined total fee income by 4.7% to £10.95bn last year and their audit fee income by 1.7% to £2.1bn. However, the rate of growth has fallen compared to 2016/17, when total fee income went up by 6% and audit fee income by 5.7%.

 In contrast, total fee income at non-big four public interest entity audit firms fell by 8.1%, having increased by 2.4% the previous year, while audit fee income fell by 6.3%, compared to a 3% increase in 2016/17.

For both categories of firm, fees from non-audit work for audit clients have continued to decline. Big Four firms saw an 8.4% drop, after a 8.9% decrease in 2017, while non-big four firms saw fees drop by 2.3%, compared to a 12.7% decline the previous year.

However, Big Four firms saw fees from non-audit work to non-audit clients increase by 7.3%, compared to an 8.5% rise in 2017.  In contrast, non-big four firms reported a 10.1% decrease in fees this year, after a 6.1% rise previously.

The average audit fee income in 2018 for all firms with public interest entity clients per responsible individual was £1.46m, an increase of £0.16m (12.3%) from 2017.

The number of audit firms registered to carry out statutory audit work in the UK and the Republic of Ireland (ROI) fell by 4.7% in 2017/18, down from 5,660 to 5,394 audit firms. This is in part due to a decline in both the number of sole practitioner audit firms (down from 2,733 to 2,558) and firms with two to six principals (down from 2,618 to 2,534).

Meanwhile membership of the accountancy bodies continues to grow. The seven bodies overseen by the FRC have over 365,000 members in the UK and the ROI and almost 550,000 members worldwide. The average annual growth in the UK and the ROI between 2014 to 2018 was 2.2% and 3.1% worldwide.

Growth rates of membership vary considerably at each of the individual accountancy bodies in the UK and ROI. ICAEW continues to have the largest number of members in this jurisdiction; however, ACCA showed the strongest growth at a compound annual rate of 4.1% between 2014 and 2018.

There are over 164,000 accounting students in the UK and the ROI and nearly 600,000 worldwide. Student numbers in the UK and the ROI increased by 0.2% and by 1.5% worldwide from 2017 to 2018, which the FRC said indicates accountancy remains a popular profession and the UK a centre of excellence.

The FRC said that in 2018, over 75% of the 30 audit firms questioned have a diversity policy. This compares with 2017, when 64% of the 35 firms had diversity policies. However, taking the three categories of female, BAME and disabled, the percentages for partners was the lowest amongst the senior management levels across each of these diversity indicators.

Key facts and trends in the accountancy profession 2019

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