Downturn sees boom in audit tendering

Audit tendering is at its highest level in a decade as accounting firms come under pressure to deliver low-cost audits in the wake of the financial crisis, Ernst & Young’s audit chief has said.

Not since the beginning of the new millennium has Ernst & Young’s head of assurance John Flaherty seen so much tendering activity.

‘The current economic situation is creating a significant amount of audit tendering,’ Flaherty said.

‘We are seeing more driven on the grounds of price and [potential clients] asking if we can reduce the audit cost.’

Last Monday, FTSE 250 engineering firm IMI announced it would be dropping its auditor KPMG after 20 years of service, in favour of Ernst & Young.

It is understood cost was a contributing factor for Ernst & Young’s success, but was not one of the main reasons.

A few weeks before it was KPMG grinning after the announcement that it had won the audit of business services firm Rentokil from industry leader PricewaterhouseCoopers.

The competition is fierce, leading some firms to offer new ‘slimline’ audit packages. KPMG sparked discussion at the highest levels when it was revealed its Rentokil audit would integrate internal and external audit functions.

Flaherty believes the KPMG package runs close to ethical boundaries.

‘The way they have packaged and described it has brought them closer to the line of what is acceptable and not acceptable…each of the firms needs to take its own view about where that line is,’ he said.