They’re the savviest buyers in the business. Or, alternatively, the most political audit pitch there is. Who audits the audit firms themselves?

Finding out is the equivalent of asking the chef what he or she would eat when you order your lunch. Surely the firms themselves know who best to choose?

Accountancy Age decided to find out how much auditors pay auditors, how often they rotate and how often audits go out to tender. What issues are there with their positions on the audit choice debate? And do they really know better than the average corporate?

Auditors

Of the top 20 firms that responded to our survey, only five either had no auditors as they are partnerships or recent conversions to LLPs.

Top of the list, with an expertise in professional service firms, is Horwath Clark Whitehill with three audits. Grant Thornton also has three (though you would expect that), Kingston Smith and PwC have two audits and the rest have just one.

Cost

The Big Four pay around £300,000 for their audits. Thereafter, the figures drop away slightly, with BDO paying PwC £200,000, Grant Thornton paying PKF £152,000, Smith & Williamson paying Deloitte just a shade over £300,000 and Vantis paying £226,000 to auditors E&Y.

The rest of the top 20 pay less than £100,000.
And like the market for major companies, the fees seem to have soared in the past year or two. Excluding Horwath Clark Whitehill, whose auditors carried out minimal work for the previous year and therefore are not comparable, the nation’s audit firms are paying 14% more for their audits than they were on the previous year they reported.

Rotation

Perhaps one of the more striking features of the table is the degree to which the Big Four, like their clients, rarely change their auditor.

E&Y has not changed auditor for 20 years, something it must hope its clients would want to do too, but the rotation issue raises questions for E &Y auditor BDO Stoy Hayward. In the course of researching this piece, BDO managing partner Jeremy Newman reiterated his view that best practice involves reviewing auditors roughly every seven years.

PwC has stuck with Horwath Clark Whitehill for 11 years, and Deloitte with Grant Thornton for four years.

KPMG has used Grant Thornton for 12 years, but could be ready for change soon
‘Now that we have entered into KPMG Europe there is likely to be a review of all our suppliers, including our auditors,’ says a spokesman. Could GT’s time be up?

For other firms, the figures are interesting, but may not show a willingness to spend longer periods with an auditor. Most of the firms below the top six only became LLPs relatively recently, and are still on their first auditor since then.

Audit ‘choice’

Of course, for many firms, there are issues about their choice of auditor relating to their views on the audit choice debate.

Why, for instance, doesn’t Mazars have a joint audit given its defence of the concept of joint auditing?

David Herbinet, head of professional affairs at Mazars, says: ‘At group level, Mazars has joint audit. The auditors divide various parts of the audit between them. It is impractical to have two auditors for every division. This is the process of joint audit.’

And why does Jeremy Newman of BDO have the biggest of the Big Four auditors, when he rails against the ‘institutional prejudice’ in favour of the largest four firms?

Newman says: ‘If we were to make a call today we might make a different call to one we took a few years ago. Our market position is different now. Four years ago we took the view that we didn’t want to go to a direct competitor. Our competition then was much more with the mid-tier.’

Partly he didn’t want to create a situation where a rival knew intimate details of his firm from the audit. He thinks that is less likely in any case with PwC given its size.
Mazars thought similarly, but took the view that a confidentiality agreement with auditors Horwath Clark Whitehill was a better solution.

Grant Thornton did think that hiring a Big Four firm would be an issue. A spokeswoman says in answering why the firm picked PKF that: ‘conflict issues potentially ruled out the Big Four’.

Savvy buyers?

So are auditors savvier buyers of an audit than anyone else? They know more about how much things cost, after all.

‘I am not sure we are necessarily savvier buyers. We understand the issues they have got to face,’ says Glyn Williams, finance partner at Mazars.

Most firms seem to get on quite well with their auditors, at least those that tell us so. Perhaps that is a sign of that understanding.

Newman of BDO can’t resist turning the question back to the audit choice debate itself. ‘One thing I have learned from it is that I know what it is like to be audited by PwC. I know what the quality of their audit is like because I undergo it. Our audits are as good as theirs.’

To read the top 20 firms and their auditors click here

Reporting team: David Jetuah, Nicholas Neveling, Kevin Reed