A UK Competition Commission (CC) statutory audit survey found 83% of
FTSE 350 companies that recently switched auditors opted to choose
another Big Four firm while 97% of all switches have been to or among
the Big Four.
This highlights a high level of concentration in
the UK's audit sector, in which four firms carry out an overwhelming
majority of listed company work.
The CC has been investigating concentration levels in the UK following an Office of Fair Trading referral in October.
The
survey includes a sample of 607 interviews with FTSE 350 and non-FTSE
350 financial directors, chief financial officers and audit committee
chairs.
Similar to FTSE 350 companies, 90% of non-FTSE 350 companies also stuck to the Big Four when switching auditor.
Half
of FTSE 350 companies that switched auditor said it led to a decrease
in audit fees and 64% said it led to improved audit quality. The results
were similar for non-FTSE350 companies.
Tendering
Two-fifths
of companies have tendered in the past five years with FTSE 350
companies less likely to do so than non-FTSE companies.
Half of
the companies surveyed last tendered six or more years ago or have never
tendered. The most common reasons for not changing auditor were high
quality service, good value for money and the fact that a company is
happy as things are.
Interestingly, companies that use a non-Big
Four firm (26%) are more likely to have never tendered than those who
use a Big Four firm (11%).
When asked which firms are most
commonly invited to tender, the Big Four dominate with KPMG and Ernst
& Young mentioned most.
The survey found the disparity
between the proportions of FTSE 350 and non-FTSE 350 companies that only
invited the Big Four. Six out of ten FTSE 350 companies only consider
Big Four firms in tenders compared with 46% of other companies.
The
survey found Big Four only tenders were linked to the company's size.
Seventy percent of companies with 10,000 or more employees only invited
the Big Four to tender compared to 59% of companies with fewer than
10,000 employees.
When asked who they would consider if their
current auditor ceased trading, FTSE 350 companies indicated they were
much more likely to consider the Big Four.
In terms of audit
fees, 26% of FTSE 350 companies spent between £1m-£5m on audit annually
while 45% spend anything up to £500,000.
For 38% of FTSE 350 and 14% of other companies, more than 40% of fees went towards the audit of a company's subsidiaries abroad.
Most
FTSE 350 financial directors and chief financial officers said that a
disagreement over non-audit services would not be a trigger to consider
switching auditors, indicating that companies do not view the provision
of non-audit services as a conflict of interest with audit.
The CC has so only published the findings of the survey and is yet provide its views on the information gathered.
The CC is expected to issue a final report into audit market concentration at the end of the year or early 2013.