NEW EU audit reforms are expected to trigger a wave of contracts changing hands, which could open up a £10bn market for advisers.
The regulations, which come into force today, force large companies to tender their statutory audit at least every ten years, and change their auditor every 20 years
The EU directive places strict limitations on the non-audit services that a group’s audit firm can provide. A breach of any of the requirements in relation to large company audits, even an immaterial breach, could affect the auditor’s ability to issue an audit report.
The latest regulatory changes are aimed at shaking up the long-established relationships between businesses and their auditors, to increase competition in the market and improve the quality and independence of audit services.
According to BDO, which analysed 895 UK registered listed entities, £10bn worth of audit and non-audit services could swap hands between accountancy firms in the next ten years due to the new legislation.
The big ticket audits will be well defended by current auditors. But the separation of non-audit services is likely to require more radical change.
The non-audit fees of UK registered PIEs provide a huge opportunity for non-Big Four firms to win conflict work and build relationships and credibility with businesses.
Jo Gilbey, partner at BDO said: “Today marks a turning point for the profession. EU audit reform has played a big role in the quality and independence of the audits of large companies in the last few years. With the referendum looming large, there’s never been more discussion around EU law affecting UK business.”
Sceptics say mandatory rotation will simply continue to feed the pipeline for Big Four firms. Since the audit reform of FTSE 350 firms, mandatory rotations have seen new auditors put in place, breaking up audit relationships spanning decades. However, most auditors were replaced by another Big Four firm.
Gilbey added: “We have always believed audit reform is a long-term game. Genuine opportunities to win the larger company audits are likely to come to fruition in the second round of rotation. That said, the opportunities presented now are vast, particularly in the non-audit services market.
“The time for careful navigation of rules is over. We expect all PIEs – and many of the larger AIM companies – will seek a strict separation of the provision of audit and non-audit services.”
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