EXCLUSIVE: FTSE 250 audit fees exceed £200m for first time

Amid falling quality and a lack of competition, audit fees for FTSE 250 companies increased 6% in the last year, hitting £203.6m, in a market dominated by the Big Four audit firms, according to exclusive research by Accountancy Daily

The total audit fee bill for the FTSE 250 rose by 6% (2018: £192m), and when non-audit fees are included, the overall total paid by audit clients to their auditors was £274m, despite an overall drop in non-audit service fees.

The FTSE 250 audit market, like the FTSE 100, is dominated by the Big Four firms – Deloitte, EY, KPMG and PwC, with less than 5% of listed audits – 12 companies – at this level being audited by mid-tier firms. Here again only BDO and Grant Thornton have any audits and the business is worth less than £4m. When considered by value, 98% of audit revenue is earned by the Big Four.

More than half of the companies (57%) pay £600,000 or less for their audits, suggesting a market that is well within the reach of the challenger firms, which also include Mazars, the firm recently appointed to audit the international operations of US-listed banking giant Goldman Sachs.

Some 24 FTSE 250 companies switched their auditor ahead of their 2018 year end, with a further 15 due to swap auditor ahead of their 2019 year ends. 148 companies have changed auditor since 2010.

Security group G4S is the most expensive FTSE 250 audit – the company pays PwC £8m, plus a further £1m in non-audit services. John Wood Group saw its audit fee leap from £2.98m to £7.49m for 2018 in the wake of its takeover of Amec Foster Wheeler.

The results of the survey come at a crucial time for the auditing profession as it faces a radical shake up – the Competition and Markets Authority (CMA) has called for mandatory joint audits, an operational separation of audit practices from other services among the Big Four and greater scrutiny of audit committee decisions.

At the same time, former London Stock Exchange chair Sir Donald Brydon is currently heading an independent review of the quality and effectiveness of audit.

Natasha Landell-Mills, head of stewardship at investment manager Sarasin & Partners, said: ‘We need more competition in the market, but competition alone will not improve audit quality.

‘We need to ensure that auditors are following the right rules. It is all very well having eight policemen on the beat rather than four, but if those eight policemen are implementing the wrong rules, then that is no good.’

Philip Smith

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Accountancy Daily FTSE 250 Auditors Survey 2019 [Premium - subscriber only]

 

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