Audit fees for UK-listed companies up 75% since 2018, study finds
London, February 26, 2023
Lack of competition and a regulatory drive to improve quality drive costs higher
A lack of competition in Britain’s audit market and a regulatory drive for better quality have pushed up fees for London-listed companies by 75 per cent over the past five years, according to a new report.
The average cost of an audit for a public company in the UK jumped from £397,000 in 2017-18 to £694,000 in 2022-23, according to research by the Quoted Companies Alliance, which represents small and medium-sized businesses.
The QCA said in its report that the 75 per cent rise was driven by a dearth of competition in the UK audit market, extra financial reporting requirements and auditing standards, and accounting firms seeking to boost the profitability of their audit arms.
James Ashton, QCA chief executive, said “drumming up interest for a competitive [audit] tender is significantly harder than it was”.
“We know that companies that have actively chosen to be public, that require the imprimatur of a good audit to instil trust and confidence in their shares, should not be priced out of the market. That’s a failure of competition — and it is far from being in the public interest,” he added.
Just four firms — Deloitte, EY, KPMG and PwC — check the books of 98 companies in the blue-chip FTSE 100 and 84 per cent of the mid-cap FTSE 250, according to data provider Adviser Rankings.
Improving competition is a key element of the UK government’s long-delayed plans to overhaul the audit sector following high-profile failures at companies including retailer BHS, outsourcer Carillion and travel group Thomas Cook. All three were audited by one of the Big Four.
However, the Big Four have at the same time been retreating from taking work from smaller companies, including ones listed on London’s junior Aim market, leaving those businesses with fewer options when seeking an external auditor.
The QCA found that between 2018 and 2023, average audit fees on the London Stock Exchange’s main market jumped from £733,000 to £1.28mn.
On Aim, average fees rose from £130,000 to £228,300 over the same period, while on the smaller Aquis Exchange, fees increased from £55,000 to £90,000.
The surge in fees has also coincided with the Financial Reporting Council, the UK audit watchdog, increasing enforcement over poor quality audits and demanding that firms improve their work after a slew of corporate scandals.
Richard Moriarty, the FRC’s new chief executive, said in November that his priority was to ensure high-quality audits and boost “public trust and confidence” in the sector, and signalled that he was relaxed about the Big Four remaining dominant.
Ashton of the QCA said: “Quality counts, undoubtedly, and the FRC has made driving up audit quality one of its key focuses for several years now — with notable success.
“But that focus comes at a cost if it has inadvertently compromised many companies’ ability to invest, recruit, export and, broadly, compete.”
The FRC declined to comment. A person close to the watchdog said it was “mindful” of the need to have proportionate regulation in the UK and that most auditing standards were set at an international level.
“Most people would agree that [audit] fees five years ago were artificially low and needed to increase to improve quality,” the person added.
In 2022, FRC chair Sir Jan du Plessis said that if he were a company’s chief financial officer, the audit fee “is the last place that I would look to cut costs”.
[The Financial Times]
