Accountants warn on audit market reforms

Above the surface On the face of it, FTSE companies appear to be switching amongst the Big 4. Hơwever, firms like Grant Thornton LLP and BDO LLP are winning business amongst FTSE constituents, proving there is more happening under the surface of the audit market than you may think.. 98% of the FTSE100 and gs% in the FTSE 25o are audited by the "Big 4": 85 companies changed their anditor between 2011 - 2014. Only 40 companies changed their auditor in the ten 6 com panies changed in 2011. 6 companies changed in 2012. 27companies changed in 2013. 46 companies changed their auditor in 2014 alone. years prior to 2011. PwC, Delcitte, KPMG a nd EY. Which means the rate of change is accelerating.. 98% 85 40 6. 27 46 Below the surface 183 A 'Teenage Market' companies have NOT changed their auditar in over ten years. Companies may not know how to run an effective audit tender process, or even what best value looks like. Participants' maturity ranges from child-like to young adult. All a re learning. Boards are learning Some NEDS ha ve experience to share but the majority have yet to tender. Audits are evolving Running a robust audit tender prooess often results in a very different approach to the audit itself, and im proves the value gen erated post-selection. A poar tender does not. Big 4 audit providers are learning The Big 4 are getting better and more experienced at competitive bidding. Partner performan oe is variable and there is no consistency of firm approach, but all are improving. The pace of change in the audit market is increasing. Competition is forcing audit firms to utilise new technologies and off-shore resouroes to improve efficiencies in their approach freeing them up to think more strategically about how best to deliver their services. Next tier audit firms are learning Audit firms like Grant Thorn ton and BDO are not necessarily winning FTSE audits but they are winning non-audit services as a result of the tenders. 14 10% companies have used auditors outside the Big 4 since 198 5. was the average cost reduction realised by those companies which changed their auditor. The reform has NOT (yet) changed the competitive landscape for audit, but it is changing. One of the non-Big 4auditors currently works with 107of the FTSE 350, including 40 non-audit dlients in the FTSB100. They have been in vited to tender in at least 20 situations in the 350 in the recent six months. Companies who have changed auditor are realising financial AND operational benefits. Cost reduction is NOT the deciding factar in audit firm selection, in some ases the cost of audit increased, but (on average) the cost of audit fell. The biggest drop, in pure finandial terms, was Aviva which saw a £6.9m cost reduction from moving auditor. Further, the auditor has advised that the depth, breadth and quality of these engagements has improved since 2011. The biggest percenta ge fee increa ses from a change in auditor came from: The biggest percentage fee reductions from a change in auditor came from: Perform Group - increased by 31% Tui Travel - increased by 14% Land Securities Group - increased by 8% IG Group Holdings – reduced by 28% Alliance Trust - reduced by 48% United Utihties - reduced by 43% Five key recommendations Download our best practices guide offering Find out more at: for maximising your audit tender process recommendations for getting the most out of your audit tender process. proximagroup.com/audit A Proxima See the change * all data pants are asat July 2014 Proxima is the alternative approachto the conventional in-house procurement function. It's one that gives a profoundly different experience to stakeholders, as well as to their suppliers. One that is impossible to replicate in-house. And one that transforms performance because of how it helps align third party costs with corporate aims. More information can be found at http://www.proximagroup.com © Proxima 2014. All rights reserved.