Conditions right for mid-tier assault on the FTSE monopoly

To boast a clutch of FTSE 100 audits has always been the ‘brass ring’ for the
profession ­ but those outside the top four, are almost completely frozen out of
the top flight.

The exceptional conditions could see the audit market blown wide open,
however.

Big Four auditors have come under fire after the banking meltdown and, with
jittery investors looking to shore themselves up, there may be serious weight
added to the dissenting voices calling for a break-up.

Coupled with recent pressure from MPs to restrict firms’ non-audit services,
the mid-tier could be well-positioned to make genuine inroads into the top
flight.

Regulators ­ and unsurprisingly the mid-tier ­ have been banging on about
audit concentration in the market for time immemorial, calling for the Big
Four’s stranglehold to be loosened, if not broken.

Financial Reporting Council chief Paul Boyle and private equity boss Jon
Moulton have both warned the audit market as it stands could not cope if one of
the quartet went down.

Recently the House of Commons Treasury committee asked the FRC to revisit the
issue of audit firms providing non-audit services to audit clients. The mid-tier
have let the committee and regulators know they are in favour of a formal break.

But changing clients’ attitudes is also a major obstacle.

One FD tells Accountancy Age: ‘To talk the talk, you’ve got to walk
the walk,’ when asked why he rejected the idea of a mid-tier auditor.

The current statistics make grim reading. From the mid-tier, only BDO Stoy
Hayward can boast a FTSE 100 audit courtesy of client Randgold Resources, the
Jersey based gold miners.

In the FTSE 250 the gulf is even more pronounced. According to the latest
Hemscott rankings, Stoy Hayward, Grant Thornton, BDO Orion in Gibraltar, Baker
Tilly, Begbies Chettle Agar (said to be the oldest firm in the City), Moore
Stephens and PKF have 19 audits between them, or 7.6% of the market.

The FTSE indices are up for their quarterly review this week. At the
beginning of the year 14 companies swapped places between the FTSE 100 and the
FTSE 250 because of the market volatility.

PwC still has the lion’s share with 37 audits, KPMG (24) has leapfrogged
Deloitte (23), while Ernst & Young has 14 ­ but the balance is certain to
shift again after the review.