Audit income at the Big Four accounting firms rose at a multiyear-record rate last year, far outpacing their smaller rivals, as the groups raised prices to counter an increasingly harsh regulatory environment.
Total fees at the UK audit divisions of PwC, Deloitte, KPMG and EY increased 7 per cent to almost £2.3bn in 2019, according to the latest annual review of the market by the Financial Reporting Council, the industry watchdog.
It said the rise was far larger than a 1.7 per cent increase in audit fee income at the Big Four firms in the previous year. It eclipsed growth at the challenger firms, which include BDO and Grant Thornton, whose audit income rose just 2 per cent last year.
PwC, KPMG, Deloitte and EY have raised their fees and abandoned risky clients in the past two years in the face of closer scrutiny of their work from regulators. However, the large jump in audit income could fuel concerns about the continued stranglehold of the Big Four over Britain’s audit sector. The firms audit all FTSE 100 companies and all but 21 of the FTSE 250 despite attempts by politicians and regulators to improve choice in the market.
The jump in audit income comes despite a 21 per cent fall in the amount of fees the Big Four made from providing consulting advice to audit clients, which the FRC called a “positive market shift”.
The Big Four firms pledged to ban non-essential consulting work for audit clients in the FTSE 350 by 2020 after pressure from politicians and campaigners. However, about a quarter of total audit fees — including fees from non-listed clients — are still derived from consulting work at each of the firms, the FRC’s data showed. Last year, the watchdog tightened the rules on what advisory services auditors could provide to listed clients in an effort to strengthen audit independence after a string of scandals.
The increase in audit income also comes ahead of regulatory intervention in Britain that will force the accounting groups to partially separate their audit and consulting practices. PwC, Deloitte, KPMG and EY have until the end of this month to outline their plans for the operational separation of their audit units by 2024. It is the first structural overhaul of the firms since the collapse of UK outsourcer Carillion in 2018 triggered calls for significant reforms of the audit market to increase competition, end conflicts of interest and improve regulatory oversight.
“The latest data across the firms reveals some welcome market developments as the FRC continues to drive audit quality improvements,” said David Rule, executive director of supervision at the FRC. “Improving choice and resilience in the market also remains a major focus ahead of wider government reform and planned operational separation of the audit practices of the Big Four.”
This week, the government’s department for business confirmed the appointment of Keith Skeoch, former chief executive of asset manager Standard Life Aberdeen, as interim chairman of the FRC. The former chairman, Simon Dingemans, quit unexpectedly in August after just eight months in the role to join private equity firm Carlyle.
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Big Four’s audit income jumps as firms raise prices - Financial Times
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