UK watchdog to focus on competition in company audits
Reuters
Published Dec 14, 2023 10:22
By Huw Jones
LONDON (Reuters) - Britain's accounting watchdog said on Thursday it would focus on studying competition next year as KPMG, EY, Deloitte and PwC - dubbed the world's Big Four - continue to dominate auditing of big UK companies, limiting choice in the market.
The Financial Reporting Council (FRC) said a key area of policy work in 2024 would be market studies, even thought it has yet to obtain powers like the UK Competition and Markets Authority to force through remedies.
Market studies would help drive improvements in the audit market, the FRC said.
"These will enable us to explore issues relating to the audit market in more detail, generating richer information about these matters and potential proposals for action if we identify concerns," the FRC said in its annual "snapshot" of the audit market.
After accounting scandals at builder Carillion, retailer BHS and elsewhere, three government-commissioned reviews recommended root-and-branch reform of auditing, including a new, more powerful watchdog - by effectively rebadging the FRC - but legislation has yet to be brought forward.
The FRC said that commencing market studies now would help develop capabilities once they were in place.
So-called challenger audit firms, the next tier down from the Big Four, have seen a small increase in market share, but the audit market remains highly concentrated, the FRC said.
"The Big Four accounting firms continue to dominate, earning 98% of FTSE 350 audit fees in 2022, resulting in limited choices for businesses and ongoing concerns about resilience," the watchdog said.
Audit fees increased between 2021 and 2022 for mandatory company audits by 8% to 1.1 billion pounds.
Some FTSE 350 companies switched from a Big Four audit firm to a challenger, but the proportion of FTSE 350 companies making such a switch was lower in 2022 than in 2021, the FRC said.
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