More Top Companies Tendering Audit Services In Response To New Reforms

Research by procurement services provider Proxima Group shows that more and more large companies are beginning to tender for their audit provider.

The research found that although more than half (183) of the FTSE350 have not changed their auditor in the past decade, this is beginning to change. An infographic published by Proxima shows that 85 of the FTSE350 have changed auditors since 2011, with 46 of these companies changing auditor in 2014 alone.

This is primarily due to reforms proposed by the Competition Commission last year, which were passed by the European Parliament in April. New reforms now require FTSE350 companies to tender their audit services every ten years, and require Public Interest Entities (PIEs) to change auditor every 20 years.

According to Proxima’s findings, top companies tend to favour the ‘Big 4’ auditing providers: PwC, Deloitte, KPMG and EY. These four currently audit 98 percent of the FTSE100 and 95 percent of the FTSE250. However, one of the non-Big 4 auditors currently works with 107 of the FTSE350, including 40 non-audit clients in the top 100. The same auditor has been invited to tender on at least 20 occasions in the last six months for FTSE350 companies.

Proxima’s analysis states that many companies may not know how to run an effective tender process for auditing services, or even recognise best value. However, new reforms are forcing companies to learn more about the tendering process. While the new rules do not come fully into force until 2020, the recent increase of companies changing auditors shows that both firms and audit providers are embracing the process already. Companies that have tendered their auditors have also seen a cost reduction of an average of 10 percent according to research.

Auditors outside the Big 4 are also beginning to win FTSE contracts, albeit for non-audit services, as a result of tenders. Proxima’s statistics show that 14 companies have used ‘Tier 2’ auditors since 1985, but they say the competitive landscape is changing.

Commenting on the research, Richard James, Category Director for Professional Services at Proxima, said: “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.”

James says that the recent rise in companies swapping auditors indicates that many firms want to snap up the best audit teams 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,” he added.

Proxima has also published a best practice guide --  5 key recommendations for maximising your audit tender process -- which is available to download for free here.

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