The first tranche of audit tenders has seen familiar faces picking up major audits - illustrating that more market competition is a long way off
THE EBBS AND FLOWS of the quarterly Adviser Rankings make for subtle, but telling, reading as to the fortunes of the UK’s audit community.
We have seen opening exchanges following efforts to restructure the market. The first round of companies at a point in their audit tendering cycle that matches the impending legislative and regulatory need to put the work out to tender, have done so. And so we have seen some audits changing hands in the past year, some that had been held onto for a long time.
Unfortunately, the overall rankings find that the big audits have been retained by the Big Four.
Other firms, namely Grant Thornton and BDO, have more traction among FTSE all-share or AIM, but these are smaller clients. The Adviser Rankings show that sub-FTSE 350 is still dominated, as far as market-cap is concerned, by the Big Four.
The opening-up of this market was never going to be quick – but we can only hope it’s not glacial. As boards look to add diversity among their ranks, that may well impact on the types of decision they make, particularly if it breaks the ex-Big Four dominance among their ranks.
Maintaining the status quo, in an audit sense might, therefore, seem like a bad thing. But audit committees are under more scrutiny than ever – and for them hand out audit work to untested firms? A bigger risk, than to not.
Another unfortunate aspect of the whole audit debate is trying to understand where the line is drawn between competition and quality. The two issues have been conflated between the various inspections into the market at home and by the EU. If a firm outside of the Big Four were to deem it necessary to win a big bank audit client, would they not try and create a team from those already undertaking the work within the industry? How this increases quality, at least in the short- to medium-term, is questionable.
And with smaller firms being driven out of the market altogether as the audit exemption threshold increases inexorably the world, ironically, has fewer and fewer players day by day.
So, quality? Well, without a definition that looks like a lengthy, but indefinite wait. Competition? A similar waiting time.
Kevin Reed is editor of Accountancy Age and Financial Director