- Research from Proxima reveals changes in buying professional services as nearly a quarter of FTSE350 companies tendered their audit in last three years –
Key Proxima Research Findings (as at July 2014):
- 98% of the FTSE100 and 95% of the FTSE250 are currently audited by the Big 4: PwC, Deloitte, KPMG and EY.
- 183 companies have not changed their auditor in over 10 years
- 46 companies changed their auditor in 2014 alone.
- One of the non-Big 4 auditors currently works with 107 of the FTSE350, including 40 non-audit clients in the FTSE100. They have been invited to tender in at least 20 situations of the FTSE350 in the recent six months.
New research announced by procurement services provider Proxima, finds that over half of the FTSE350 have been using the same auditor for a decade or more. However, almost a quarter (85) have changed their auditor since 2011, indicating a significant change in attitude as audit tender becomes a procurement focus, as well as a finance necessity.
Analysing the use of audit services amongst the FTSE350, Proxima has found that 46 companies changed their audit provider in the first half of 2014, primarily due to the reforms proposed a year ago by the Competition Commission that mandates FTSE350 companies tender their audit services every ten years; and in April of this year, this reform was also passed by the European Parliament. The new rules also require Public Interest Entities (PIEs) to change auditor every 20 years.
Richard James, Category Director for Professional Services at Proxima, comments, “The new reforms opens up a wealth of opportunity for businesses to revisit and refresh their current auditor relationships. A well-run tender will ensure the business receives best value and output from the audit, whilst also encouraging audit firms to re-evaluate their processes and team structure.”
James continues, “Selecting the right auditor for the business is critical, but it is not easy. Buying statutory audit is not like buying stationery or cleaning services – you can’t assess the quality of the output and reverse engineer the price! The business must understand exactly what it wants from its audit and that’s unlikely to be the lowest cost. Relationship management, cultural alignment and sector specialism will be much higher up the wish list.
“Looking at the big picture when selecting an auditor is also crucial,” adds James. “An evaluation of the other outsourcing or consultancy firms that the business uses can provide real food for thought when selecting an auditor. Ninety-eight percent of the FTSE100 and 95% of the FTSE250 are currently audited by the Big Four, but are they really the best fit for all those companies? Many Tier 2 firms are hungry for larger auditing contracts and can provide interesting and useful alternative perspectives and ideas when invited to tender against the Big Four.”
Whilst the new rules do not fully come into force until 2020, the Proxima research reveals a change in attitude amongst the UK’s largest corporates with some already embracing the new tender process. While Tier 2 firms are receiving more chances to pitch to larger clients, they may not yet all be winning. However, Proxima has found they are building good relationships in order to offer other services and build up expertise for the next round of pitching.
James concludes, “Our research shows that 46 FTSE350 businesses have already tendered their audit and swapped provider in the last six months. The best audit teams will not be around forever, and so it is imperative to start the tender process sooner rather than later to secure the ‘A-team’ ahead of the competition. Auditing has much to offer if you know what you’re looking for, and how to buy it, and when conducted properly, a tender process will ensure that the right firm is selected for the job.”