Big Four FTSE 100 audit fees hit record £726m

The UK’s top 100 listed companies have seen an 8% hike in annual audits fees to hit £726m, as Big Four dominance locks out challenger firms while investment and regulatory pressure drives up costs

As audit fees hit record highs with an 8% increase on the amount paid in the previous year (£674m) by FTSE 100 companies, the Big Four grip of the top UK companies continues, although the share between the big players is becoming more even.

In this year’s exclusive Accountancy Daily FTSE 100 Auditors Survey, analysis shows that a decade ago PwC could lay claim to 37 FTSE 100 companies. Now its share stands at 25. Again, 10 years ago, EY had 16 FTSE 100 audit clients, but after building up its share, that figure now stands at 23.

Deloitte is the auditor of 25 companies currently, while KPMG, despite being under scrutiny over a number of alleged audit failures, maintains its share of 27 FTSE 100 companies.

However, this even split is not reflected in fee income collected by each Big Four firm.

PwC charged its share of the FTSE 100 some £191m in audit fees, the same as KPMG, which makes the two firms top in terms of fee income.

But they have been moving to this position from different directions. Four years ago, PwC recorded nearly £300m in audit fee income among the FTSE 100, while KPMG could only claim £131m.

Over the same time period, Deloitte has grown from £90m to £174m while EY has shifted the dial from £136m to £170m.

The changes have been brought about by mandatory tendering and audit firm rotation, which requires FTSE 350 companies to put their audit out to tender at least every 10 years, with a compulsory change in audit firms after 20 years. Currently, only 16 FTSE 100 companies have had the same auditor for more than 20 years, and the majority of these have announced that they will be switching in the near future.

Currently, there are no challenger firms present in this market segment. BDO used to have a single audit in the FTSE 100, Randgold Resources, but when the South African gold miner was acquired by Barrick Gold in December 2018 it left the FTSE 100, and so, by default, did BDO.

How has Covid-19 affected auditing?

Accountancy Daily’s analysis shows that the coronavirus pandemic is likely to have a further impact on audit fees. ‘Coronavirus has had such a big impact,’ Hermione Hudson, PwC's UK head of audit told Accountancy Daily.

‘Auditing has become harder because we have had to work remotely rather than being on site with an organisation and being able to gather evidence and look management in the eye.’

The end-of-year process is now taking longer. The December 2019 year-ends broadly stuck to the same timetable as Covid-19 was a post-balance sheet event, whereas companies with a March 2020 year end may have moved their reporting timetable back by a few days.

However, looking ahead the December 2020 year ends have required planning and preparations to begin much earlier than usual.

Then there is the degree of uncertainty that has been caused by the pandemic and economic lockdowns. ‘There is a whole new scale of uncertainty,’ says Hudson.

‘Trying to make judgments over the quality of evidence for revenue recognition, going concern and impairment is difficult. Extra work will need to be done, and this will require the time of our senior people.’

Read the exclusive Accountancy Daily FTSE 100 Auditors Survey 2020 with detailed analysis of the listed audit market, fee breakdowns by company, five-year fee comparisons, audit tenders and switches here

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