FEATURE Audit Survey
Auditing the auditors
The Financial Director audit survey shows the Big Four has maintained its
stranglehold on the audit market. But for how long? asks Richard Crump
B
y the time you read this, the
landscape of the audit market
will likely have been subject to
dramatic, tectonic change. The
latest Financial Director audit
survey shows the Big Four accountancy
firms continuing to dominate the FTSE 350
audit market, while smaller non-listed
companies mimic their larger peers in
picking the best names available to vet their
accounts. This is all set to change.
The industry stands on the cusp of the
most radical overhaul in its history. An
investigation into the Big Four’s
concentration of the market is set to
break their stranglehold of large-listed
audits and potentially pave the way for
smaller firms to make inroads into a
previously closed market.
At the time of writing, the Competition
Commission is days away from delivering
the preliminary findings of a two-year
investigation into a perceived lack of
competition for FTSE 350 audits. While it
is unlikely the UK competition watchdog
will call for the most drastic measures that
opponents of the Big Four have urged –
such as hiving off their audit practices into
separate companies – some form of
mandatory auditor rotation is expected.
Whether or not firms such as Grant
Thornton, BDO and PKF will be able to
The Financial Director Audit Survey has
been produced using FTSE 350 data
provided by Manifest, based on
disclosures in companies’ 2011/2012
annual reports, and independent
research conducted by Financial Director.
NMC Health plc & Bank of Georgia
Holdings plc are new companies in the
index with no data available; Investec
plc has two auditors. Fees are reported
individually – therefore, they comprise
two records instead of one.
Constituents of the FTSE 350 are
correct as of June 2012.
30 | financialdirector.co.uk | March 2013
FTSE 100 highest audit fees
Company
Name
Audit fee
Audit-related fee
Non-audit fee
HSBC Holdings
Royal Dutch Shell
Royal Bank of Scotland
Lloyds Banking Group
BP
Aviva
WPP
Unilever
GlaxoSmithKline
Old Mutual
KPMG
PwC
Deloitte
PwC
Ernst & Young
Ernst & Young
Deloitte
PwC
PwC
KPMG
£31,436,210
£30,276,677
£28,600,000
£23,400,000
£21,902,277
£20,000,000
£16,700,000
£15,026,421
£13,900,000
£13,700,000
£16,555,545
£1,288,369
£5,100,000
£2,900,000
£6,441,846
£6,100,000
£3,100,000
£834,801
£3,400,000
£400,000
£8,116,726
£0
£7,400,000
£10,000,000
£7,086,031
£2,400,000
£8,600,000
£3,339,205
£6,400,000
£3,400,000
FTSE 100 lowest audit fees
Company
Name
Audit fee
Audit-related fee
Non-audit fee
Hargreaves Lansdown
Aggreko
Admiral Group
United Utilities
ARM Holdings
Capital Shopping Centres Group
Randgold Resources
Ashmore Group
Wm Morrison Supermarkets
Antofagasta
Deloitte
PwC
KPMG
KPMG
PwC
PwC
BDO
KPMG
KPMG
Deloitte
£100,000
£160,000
£200,000
£200,000
£261,000
£350,000
£385,557
£400,000
£400,000
£429,027
£6,000
£521,000
£0
£100,000
£555,000
£40,000
£0
£0
£200,000
£428,383
£0
£217,000
£300,000
£100,000
£259,000
£972,000
£0
£500,000
£700,000
£443,843
penetrate the highest echelons of the
company audit market as a result of the
Competition Commission’s findings and
recommendations, the toughening stance
on audit tenures could well filter down to
the relationships of mid-market finance
directors and their auditors.
Yet this is a debate for the future. At
present the status quo remains. Out of the
349 FTSE 350 audits surveyed by Financial
Director and Manifest – see box for details
of the data – only 15 sets of accounts were
vetted by companies outside of the Big
Four. Between them, PwC, KPMG, Deloitte
and Ernst & Young earned a staggering
£663.3m in audit fees, according to
companies’ 2011/2012 sets of accounts.
Of the four, PwC is the undisputed
leader, picking up £249.2m in fees,
compared to its nearest competitor
KPMG, which collected a distant, but
nevertheless impressive £154m in fees
from its audit clients.
On the face of it, the Big Four’s grip of
the market is as iron-fisted as ever. Yet
there is an important distinction that
should be made between competition and
choice, explains Ian Powell, chairman and
senior partner at PwC.
“It would be better if there was more
choice, but I don’t think anybody should
make the mistake in thinking there is no
competition,” Powell told Financial
Director in an interview last year. “It’s
ferocious. Every piece of work we do,
whether on audit or consultancy, is hard
fought and the pricing pressure at the
moment is significant. It strikes me that
pricing pressure is a pretty good example
of competition.”
Arguing about the distinction between
choice and competition is more than mere
semantics on the part of Powell. There is a
case to be made about the competitive
nature of current pricing in the audit
market. In 2012, the total FTSE 350 audit
market accounted for £669.4m fees,
compared to £689.8m in 2009. And it is not
only the Big Four that have experienced the
pressure – competitive pricing is perhaps
Level of importance for FDs when assessing audit quality
Ernst & Young
Efficiency of audit process
3.7
Reliability of audit report
3.63
Knowledge of sector and business
4
Independence of the firm
3
Added value
services
3.51
2
Knowledge of sector
and business
Reliability of
audit report
3.5
Communication skills
Ability to spot mis-statements
3.4
Project
management
skills
3.32
Independence of the firm
2.98
Degree of challenge by auditor
2.6
Project management skills
Scepticism exhibited by auditor
2.49
Added value services
2.43
0.5
1.0
1.5
even more telling, the lower down the food
chain you go.
One senior audit partner at a top ten
firm described the pricing environment
as “brutal, just brutal”, when speaking to
Financial Director’s sister title
Accountancy Age. He is not alone in
believing so. There have been accusations
of price-cutting, lowballing and dumping
business – the act of offering work below
cost – with a partner at a top 20
accountancy firm telling Accountancy Age
the environment is “the most challenging
I have ever seen”.
2.0
Degree of
challenge
by auditor
Communication skills
Scepticism exhibited
by auditor
Ability to spot mis-statements
Efficiency of audit process
Importance of factor for an audit
2.21
Innovation
0.0
Innovation
2.5
3.0
3.5
4.0
Average Ernst & Young
Average top 5 accountancy firms
“A number of firms are finding it
extremely difficult. We have seen margins
go down across board,” she said.
Big Four dominance
The preponderance of the Big Four among
the FTSE 350 – only BDO, Grant Thornton
and PKF have any clients in the index –
should come as no surprise. It has ever
been thus. More interesting is the fact that
they dominate the market for smaller
company audits as well.
According to research conducted by
Financial Director, the Big Four hold a 39%
FTSE 250 highest audit fees
Company
Name
Audit fee
Audit-related fee
Non-audit fee
Investec
Balfour Beatty
Man Group
Phoenix Group Holdings
TUI Travel
ICAP
Invensys
Mondi
Logica
Rentokil Initial
Ernst & Young
Deloitte
PwC
Ernst & Young
PwC
PwC
Ernst & Young
Deloitte
PwC
KPMG
£6,114,000
£5,100,000
£4,031,952
£4,000,000
£4,000,000
£3,400,000
£3,400,000
£2,754,844
£2,600,000
£2,600,000
£1,740,000
£500,000
£214,513
£500,000
£1,000,000
£1,100,000
£300,000
£166,960
£200,000
£400,000
£1,541,000
£800,000
£634,522
£2,200,000
£2,000,000
£500,000
£2,400,000
£500,881
£700,000
£200,000
FTSE 250 lowest audit fees
Company
Name
Audit fee
Audit-related fee
Non-audit fee
Personal Assets Trust
Edinburgh Dragon Trust
Herald Investment Trust
Murray Income Trust
BlueCrest AllBlue Fund
Aberforth Smaller Companies Trust
Fidelity European Values
JPMorgan American Investment Trust
Monks Investment Trust
Blackrock World Mining Trusts
Ernst & Young
KPMG
Ernst & Young
Ernst & Young
Ernst & Young
Ernst & Young
Grant Thornton
Deloitte
PwC
Ernst & Young
£14,000
£15,000
£18,000
£19,000
£19,299
£20,000
£20,000
£21,000
£22,000
£23,000
£0
£5,000
£0
£0
£0
£0
£0
£0
£0
£6,000
£12,000
£4,000
£0
£4,000
£5,824
£2,000
£1,000
£8,000
£1,000
£0
share of the overall audit market. Based on
responses from 188 finance directors,
financial controllers and group treasurers –
88% of whom were from non-listed
companies – the five most popular auditors
by response were KPMG, PwC, Grant
Thornton, Deloitte and Ernst & Young. That
the five largest firms in the UK fill the top
five slots is to be expected. Of interest is that
Grant Thornton, which vets the accounts of
six FTSE 350 businesses, garnered more
responses than Deloitte and E&Y.
Steve Maslin, assurance partner at Grant
Thornton, has previously taken issue with
claims that the mid-tier’s difficulty in
tapping the market was not a sign of
barriers to entry but simply reflects the will
of the market. This result goes some way to
bearing that out.
“We will invest and deliver high-quality
work and value for money where we have a
realistic opportunity to win work and there
are no barriers to entry. That is not
currently the case in the FTSE audit market
and will not be the case for the foreseeable
future without regulatory intervention,”
Maslin told Accountancy Age.
Speaking to Financial Director about
the results of the survey, Maslin adds:
“Grant Thornton is the clear audit market
leader on AIM and government audit and,
on various measures, has come out in the
past as one of the top three auditors to
large, privately held businesses. These
market segments already recognise the
firm’s strength in quality, service and
price – it is really only the FTSE 350 that
has lagged behind.”
March 2013 | financialdirector.co.uk | 31
FEATURE Audit Survey
Grant Thornton
Innovation
4
Independence of the firm
Knowledge of sector
and business
3
Added value
services
Reliability of
audit report
2
Project
management
skills
Degree of
challenge
by auditor
Communication skills
Scepticism exhibited
by auditor
Efficiency of audit process
Ability to spot mis-statements
Importance of factor for an audit
Average Grant Thornton
Average top 5 accountancy firms
Other strong performers outside of the
Big Four included BDO (4%), RSM Tenon
(3%), Saffrey Champness (3%) and Baker
Tilly (2%). Nevertheless, the attraction of a
big-name auditor remains – whether the
customer is a multinational company with
complex accounts or a more simplistic
mid-market business.
Part of that is based on perception. Big
Four names carry weight with audit
committees and lenders that have been
known to insert clauses into agreements
requiring the borrower to use a Big Four
auditor. The Big Four also prove attractive
to FDs and audit committees because of
their ability to deliver non-audit services in
areas such as tax, compliance and
transactional advice.
Divinia Knowles, the finance director of
Mind Candy, the company behind
childrens’ game Moshi Monsters, recently
explained that the company’s changing
corporate structure necessitated the
adoption of a Big Four auditor.
The company brought in the big guns as
auditors in 2011 when PwC replaced GSM
& Co. Subsequently, Mind Candy moved its
reporting from UK GAAP to IFRS, and saw
its audit fees increase threefold. Like many
FDs surveyed by Financial Director – 47%
of respondents use their current auditor for
tax advice - Mind Candy wanted a big name
to deal with big tax issues.
Despite being classed as an SME, Mind
Candy’s corporate structure is relatively
complex. With US employees and an
increasing number of product lines, Mind
Candy now operates with three US
32 | financialdirector.co.uk | March 2013
KPMG
4
Innovation
Independence of the firm
3
Added value
services
2
Project
management
skills
Knowledge of sector
and business
Reliability of
audit report
Degree of
challenge
by auditor
Communication skills
Scepticism exhibited
by auditor
Efficiency of audit process
Importance of factor for an audit
Ability to spot mis-statements
Average KPMG
Average top 5 accountancy firms
companies and two in the UK. “Our tax
overhead is quite complicated, because we
have all these products that attract different
taxes in terms of digital products and then
withholding taxes of consumer products. It
got to a point where we needed PwC –
they have offices everywhere,” Knowles told
Financial Director.
Tail wagging the dog
The provision of non-audit services to
audit clients remains a lucrative but thorny
issue for the accountancy profession. The
importance of non-audit services as a
secondary revenue stream is not in doubt.
FTSE 350 auditors collected £289.7m in
non-audit fees last year, while for Grant
Thornton and PKF it proved to be even
more profitable with their pure audit
business. Grant Thornton, the fifth-largest
UK accountancy firm, picked up £1.7m in
non-audit fees, compared to £1m from its
audit work, while PKF earned £101,000
compared to £86,000.
But when it comes to large company
audits, particularly banks – the audits of
which were largely responsible for the
instigation of the Competition
Commission investigation – there are
questions of a conflict to answer.
In a recent Lords committee hearing,
Lord Lawson suggested the provision of
non-audit services was a case of the “tail
wagging the dog”. Grilling members of the
Big Four who appeared before the
Commission on Banking Standards in
January, Lawson suggested that providing
consultancy services to audit clients was
an area of potential conflict of interest,
and added that a disparity between the
profitability of audit work and consulting
services was a cause for concern as “we
have the tail wagging the dog because
audit is a critical function that is in the
public interest”.
However, the Big Four denied one
service was inherently more profitable than
the other and, in any case, there are already
a number of checks and balances that
govern the work auditors can do for their
clients to “prevent clear conflict”.
“If there was a tax judgment that was
dependent on an accounting treatment
where the amounts were material, we
couldn’t give tax advice related to that,” said
John Preston, PwC’s global tax policy
leader, while Jane McCormick, head of
KPMG’s tax and pensions practice in the
UK, added that financial institutions have
tended to limit the consulting work they
give to auditors.
“Very often, it is simply more trouble for
a financial institution to use its auditor to
give tax advice than it would be just to hire
one of the competitors,” she said.
Nevertheless, John Cullinane, tax partner
at Deloitte, suggested that the profession
would be comfortable if an “iron rule” was
imposed to prevent auditors providing tax
consulting to clients. However, non-audit
work presents a likely entry route for nonBig Four firms into the market for FTSE
350 audits.
As Maslin explains, it is difficult to make
a case for being able to deliver big company
audits unless the company has some
What is the length of your audit
tenure?
26%
44%
30%
Less than five years
Six to ten years
More than ten years
12%
10%
9%
8%
6%
4%
3% 3%
ill
lar
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hit
eh
ss
rT
i lly
ke
Ba
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Cr
ow
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ne
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M
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Sa
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ng
LLP
O
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ou
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BD
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C
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Pw
MG
2% 2%
an
No less thorny for the profession, and for
finance directors and audit committees, is
the idea of companies being forced to a
compulsory switch of auditors. It is widely
expected that the Competition Commission
will demand some form of mandatory
auditor rotation when it delivers the
preliminary findings of its investigation.
Pressure is being brought to bear on this
issue from all sides. A separate
investigation into audit quality being
conducted by the European Commission,
based on proposals laid out by internal
markets commissioner Michel Barnier,
suggests companies should be forced to
switch auditors.
European policymakers remain heavily
divided on the issue. British MEP Sajjad
Karim, the rapporteur steering the bill
through the European Parliament, published
a working paper on behalf of the parliament’s
legal affairs committee which suggested
mandatory auditor rotation should only have
to take place every 25 years.
Watering rotation rules down to 25 years
– the commission initially called for six
years – may be seen as a sop to the Big
Who is your auditor?
Gr
Swings and roundabouts
Four, the cabal of firms most likely to lose
out by the enforcement of strict rotation
rules. However, Karim says it should not be
seen this way. Leaving the market as it is
will not be an option.
“The end conclusion I came to is that
neither is it a healthy situation that we
deliver on a political path where we do
something because we need to be seen to
do so, nor is it that we maintain the status
quo. I don’t want that to be seen as the
eventual outcome,” he told Accountancy
Age in an interview.
Karim’s ideas on audit tenures have
proved to be a divisive issue. Shortly after
Karim produced his working paper,
German MEP Jürgen Creutzmann,
member of the European Parliament’s
committee on industry, research and
energy, produced a report that called for
audit tenures to last no more than seven
years as it would render “the selection
process more transparent” and give the
audit committee more choice.
Creutzmann was not the only one taking
pot shots at the proposals. Ahead of the
publication of Karim’s report, a collection
of the largest investors in Europe ganged
together to urge the EC to push ahead with
tougher audit reforms.
Signatories of a joint letter sent to the EC
included Euroshareholders, a group of
about 30 European national shareholder
associations, the investment arm of Legal &
General and the Universities
Superannuation Scheme. High on their
agenda is that auditors need to rotate every
six years, although this could be extended
to nine years if there are joint audits, with a
cooling-off period of four years.
But big questions remain over whether
mandatory rotation will improve
competition, or for that matter improve
audit quality. Powell at PwC doesn’t think it
will. “That removes competition,” Powell
said. “You have immediately taken covenant
out of the equation. You might have a
fantastic audit team doing a fantastic job,
and they have to be eliminated.”
Powell’s answer is what you would expect
the leader of a Big Four firm to say. Yet his
views are shared by those in the mid-tier.
“It is quite interesting to see mandatory
rotation come up as an answer ... academic
studies show it doesn’t increase
competition,” James Roberts, audit partner
at mid-tier firm BDO, said ahead of the
KP
previous experience of dealing with the
firm. “Companies realise there is no point
putting us on a future audit tender list
unless we already have a meaningful
business relationship, eg. through advisory
services initially, and many are talking to us
already about how best we can establish
that relationship,” Maslin says.
Competition Commission report. “It would
have to include some form of mandated
involvement of non-Big Four firms.”
UK reporting regulator, the FRC, last
year decided to force FTSE 350 companies
to put their audits out to tender every ten
years – or explain why they didn’t – while
not requiring them to rotate. Maslin says
the FRC rules had been helpful, but called
for the commission to go further. “The FRC
proposals could be bolstered with some
form of backstop rotation period,” he says.
Yet something needs to be done to
encourage switching among the largest
companies. Research carried out as part of
the Competition Commission inquiry,
which surveyed more than 600 CFOs,
finance directors and audit committee
chairs, found little desire among
respondents to change auditors.
According to the survey, FTSE 350
companies have used the same auditor for
an average of 11.3 years, while 59% have
not changed auditor for at least five years.
More than a third of companies were found
to have used the same Big Four auditor for
more than 11 years, with 14% using the
same firm for more than 20 years.
However, in instances where companies
had switched their auditor, more than half
March 2013 | financialdirector.co.uk | 33
FEATURE Audit Survey
%
47%
%
%
21%
%
13%
Improving quality
Ac
co
un
tan
cy
ad
vic
e
Co
mp
lian
ce
ad
vic
e
Co
nsu
ltin
ga
dv
ice
Tra
nsa
cti
on
ad
vic
e
Tax
%
10%
10%
%
to take the hint. Already some of the largest
companies – Schroders and BG Group to
name but two – have recently switched
auditors, a consequence of a shift in attitude
towards the hitherto cosy relationships
companies enjoyed with their auditors.
So maybe the market is competitive, after
all. PwC certainly didn’t waste any time in
claiming that to be the case on losing the
BG audit to Ernst & Young. James
Chalmers, PwC’s UK head of assurance,
said: “We operate in a fiercely competitive
market where all participants win and lose
audits. We are committed to delivering
high-quality audits for the benefit of our
clients and their shareholders.”
experienced a reduction in cost and 64%
reported an improvement in audit quality.
When switches have been made, the Big
Four has mopped up almost all of the
business on offer. According to the
research, 97% of all switches made by FTSE
350 companies in the last five years have
been to, or within, the Big Four.
But outside of the FTSE 350 audit
tenures are much shorter. According to
Financial Director’s research, 44% of
companies’ current auditor has had a
tenure of less than five years, while 30%
reported tenures of between six and ten
years and 26% revealed that tenures has
lasted more than ten years.
Despite the stark figures, traction is
already being made in this area. Finance
directors and audit committees are starting
Imposing competition for competition’s
sake is not an end in itself. The aim, on
which auditors and finance director both
agree, is to improve audit quality. Because,
while price is undoubtedly important,
quality matters.
But how do finance directors judge audit
quality? And what elements of the audit
process are more important than others?
Regulators seem to think a lot of it boils
down to better auditor dialogue with audit
committees, and more extensive
communication through the auditors’
report that accompanies annual reports.
For instance, auditors will be required to
warn investors about risks within the
companies they audit as part of a “step
change” in the way audit reports are
structured, proposed by the FRC in February.
In response to criticism that auditors’
reports are uninformative, the reporting
watchdog has launched a consultation to
extend their scope to include a commentary
of the “risks of material misstatement”
identified by the auditor. As part of the
changes, which could force auditors to flag
risks that differ from those disclosed by
company directors, auditors will be
FTSE 350 auditor fees
Auditor
Clients
Audit fees
Audit-related fees
Non-audit fees
Total
BDO
Deloitte
Ernst & Young
Grant Thornton
KPMG
PKF
PwC
Total
8
89
64
6
81
1
100
349
£1,979,480
£137,146,448
£126,000,200
£1,029,309
£153,981,748
£86,000
£249,179,185
£669,402,370
£22,000
£18,953,683
£20,708,382
£8,000
£42,130,044
£13,000
£27,609,602
£109,444,711
£793,820
£72,614,890
£46,043,577
£1,712,399
£54,456,081
£101,000
£113,978,270
£289,700,039
£2,795,300
£228,715,021
£192,752,021
£2,749,708
£250,567,873
£200,000
£390,767,057
£1,065,260,160
34 | financialdirector.co.uk | March 2013
What is the fee your company paid for
its last statutory audit?
39%
18%
15%
13%
7%
6%
1%
0% 0%
1%
£1
0k
or
les
s
£1
0k
-£2
5k
£2
5k
-£5
0k
£5
0k
-£1
00
£1
k
00
-£2
50
£2
k
50
-£5
00
k
£5
00
-£1
m
£1
m£5
m
£5
m£1
0m
Ov
er
£1
0m
Which of the following non-audit services
do you use your current auditor for?
required to explain how they applied the
concept of materiality – which relates to the
importance of transactions, balances and
errors contained in the financial statements
– and summarise how the audit scope
responded to company risks.
The FRC proposals build on a raft of
suggestions published by the IAASB in
June last year aimed at improving the
auditors’ report. In addition to improving
corporate reporting in a general sense, the
various initiatives aim to force auditors to
provide greater transparency about
significant matters in the financial
statements, as well as the conduct of the
individual audit.
The changes will no doubt make the
auditor’s report more interesting as well as
insightful. The one-page report has, at times,
been derided for being an unremittingly dull
description of how the auditor has
discharged its duties which, couched in
standardised wording, sheds no light on
subjective matters in financial statements.
David Herbinet, audit partner at Mazars,
hopes that providing more information will
“improve the perception and visibility of
audit quality” and go some way to repairing
the battered reputation of audit that was
the result of failings in the audit of public
FEATURE Audit Survey
interest entities in the lead-up to the
banking collapse of 2008.
The view is shared by respondents to
Financial Director’s survey, who rated the
reliability of the auditor report as the
second most important quality, with
communication skills coming in fourth.
Top of the list was efficiency of the audit
process, which also garnered the most
written responses from those surveyed.
“An efficient and cost-effective service is
key for my company and its 100-odd
shareholders. We changed from a mid-tier
firm six to seven years ago and the fee is still
less than heretofore,” said one respondent.
Respondents were less bothered by their
auditors exhibiting much professional
scepticism, contrary to the views of the
FRC. Last year, the watchdog published a
discussion paper that urged auditors to be
cynical and pragmatic in their approach to
audits, while auditors have been regularly
pulled up by the FRC’s Audit Inspection
Unit (AIU) for a distinct lack of scepticism.
“More needs to be done to promote the
appropriate exercise of professional
scepticism, in particular in relation to the
level of challenge of management’s
explanations,” the AIU said in a typical
report last year. Despite this, scepticism was
the third least important quality expected
by finance directors from their auditors.
Only product innovation and the provision
of value added services scored lower.
Recurring gripes
Not all finance directors were happy with
their auditor, with one respondent going so
PwC
far as to say they are “an unnecessary evil
and are a parasitic influence on innovation”.
That response represented the most
extreme view, but there were some familiar
and recurring gripes that cropped up.
Chiefly, auditors cutting back on the time
devoted to the audit and giving audits over
to junior accountants.
“An overreliance on juniors, and a lack
of continuity of service amount audit
management makes for a frustrating
relationship much of the time,” said one
respondent. Another respondent mirrored
this view: “The use of young audit trainees
does not give a good impression. Our
audit spread over many weeks with
changes in personnel meaning we
supplied the same information or
explanation more than once.”
It appears they have a point. Audit hours
have become a contentious point, with the
FRC warning that firms have been cutting
costs by off-shoring certain audit
procedures, delegating work to junior staff
and using more checklists, as well as other
efficiency measures.
In its annual report into the
profession’s performance, the FRC
warned competition between firms could
damage audit quality as practices try to
increase the volume of audits they can
perform. An example in PwC’s report
said it had launched its Audit
Transformation programme to improve
audit quality. However, the guides issued
appeared to focus on improving
efficiency by reducing audit hours. The
FRC’s Audit Inspection Unit warned it
4 Independence of the firm
Innovation
Added value
services
3
Knowledge of sector
and business
2
Reliability of
audit report
Project
management
skills
Scepticism exhibited
by auditor
Efficiency of audit process
Importance of factor for an audit
Average top 5 accountancy firms
36 | financialdirector.co.uk | March 2013
Degree of
challenge
by auditor
Communication skills
Ability to spot mis-statements
Average PwC
should “ensure that there is no adverse
impact on audit quality as a result of its
initiatives to improve audit efficiency in
the light of competitive pressures”.
The most critical response came from
one FD who questioned the value of the
service they received from their auditor.
“The field work takes a minimal amount
of time and is not particularly focused.
The standard of reports including
financial statements is extremely poor and
requires significant correction. I feel that
across the audit industry standards have
dropped considerably both in terms of
technical advice and client service,” the
respondent said.
“There have been several instances
where I have queried their technical
advice on both accounting and disclosure
(at this firm and also my previous Big
Four auditors) and their advice was
incorrect on fairly basic points. This
does not give me the confidence that
their advice would be correct on more
complicated queries when I would be
looking for more guidance. Auditors
need to start to prove themselves as
valued advisers.”
With the UK regulators and European
policymakers set to reform the audit
industry – though the final terms are still
to be set – the lesson is clear. The reforms
must deliver an enhanced service and
improve audit quality for finance directors,
audit committees and investors. If the
reforms fail to achieve this, then the past
two years of arguing will have been a waste
of time and effort. ■
Deloitte
4 Independence of the firm
Innovation
Added value
services
3
Knowledge of sector
and business
2
Reliability of
audit report
Project
management
skills
Scepticism exhibited
by auditor
Efficiency of audit process
Importance of factor for an audit
Average top 5 accountancy firms
Degree of
challenge
by auditor
Communication skills
Ability to spot mis-statements
Average Deloitte