Research by PwC that shows FTSE 350 audit market is fiercely competitive rubbished by mid-tier rival
THE MARKET FOR listed company audits is “fiercely competitive” despite the dominance of the Big Four among the FTSE 350, according to data submitted by PwC to the Competition Commission.
In its submission to the Commission, which is due to release preliminary findings of its investigation into the audit market in November, PwC’s lawyers Norton Rose said there were more than 130 instances of FTSE 350 companies switching auditor between 2001 and 2011.
PwC said the evidence-based data, which represents a rate of about one switch a month, dispels the widely held view that the audit market is static and uncompetitive.
“There is a lot more to the audit market than meets the eye,” said Pauline Wallace, head of public policy at PwC, adding that the data “shows the ebb and flow of audits between firms operating in a fiercely competitive market and the dynamism of the market itself.
“When you include the audit tenders where the incumbent retains the audit – which remains outside the public domain – it shows that the audit market is in a constant state of flux.”
PwC’s claims drew a predictably hostile response from mid-tier firm Grant Thornton’s assurance partner Steve Maslin, who said the research “somewhat misses the point”.
“The focus of stakeholder concern and the Competition Commission’s enquiry is whether the market is too concentrated on four firms and PwC’s research confirms that concentration has largely remained static over 11 years,” Maslin said, adding that the average length a FTSE auditor remains in place “hardly justifies the claim made by PWC of a ‘fiercely competitive market'”.
The data provided by PwC also shows that auditors outside of the largest forms only sign off on the accounts of 13 companies within the FTSE 350 – the same number as in 2001. Over the same period, 11 FTSE 350 companies switched from mid-tier firms to Big Four firms, while only four FTSE 350 companies switched the other way.
Maslin also took issue with claims the mid-tier’s difficulty in tapping the market was not a sign of barriers to entry but simply reflects the will of the market. Citing his firm’s Audit Commission win – which equates to £21m net worth of work for at least five years of work – Maslin said GT is willing to invest when it has a realistic chance of winning.
“PwC continually talk about the failure of firms outside the four largest to invest to penetrate the FTSE market further and that there are no barriers to entry. Our recent Audit Commission win was won on the basis of an objective assessment of both price and quality,” Maslin said.
“We will invest and deliver high-quality work and value for money where we have a realistic opportunity to win work and there are no barriers to entry. That is not currently the case in the FTSE audit market and will not be the case for the foreseeable future without regulatory intervention.”
However, Wallace said the purpose of the Competition Commission inquiry is not to determine how many auditors should serve the market for large listed companies, but that the tendering process is competitive.
“The fact the market has not chosen firms outside of the Big Four is not a problem of competition,” she said.