There has been a “flood” of tenders for audit services from FTSE 100 firms this year, as companies prepare for new regulations to come into force.
EY said it anticipated 24 tenders for audit services by the UK’s biggest public firms in 2015, with “virtually all” resulting in a change of provider.
The advisory – one of the ‘big four’ audit firms – said the publication of a consultation by the Financial Reporting Council into EU regulation of the audit market and Competition and Markets Authority proposals was a “wake-up call” for firms to put their own procurement strategies in place.
In 2013 the then-Competition Commission proposed FTSE 350 companies must put auditing out to tender every 10 years. The Competition and Markets Authority postponed finalising this change to the audit market to assess the impact of the EU directive.
The directive also imposed a 10-year maximum term and said those companies that have provided audit services for 20 years or more would not be allowed to enter into a new engagement with the same firm. The EU legislation also blocks auditors from providing a number of other services, such as tax, consultancy and advisory, to the firm it is auditing.
“The new regulations are going to impact the procurement strategies of a wide range of professional services, not just the audit,” said Hywel Ball, head of audit at EY.
“UK plcs will need to make strategic decisions about which professional services they wish to receive: when, where and from whom. Many services will have to be provided by firms other than the incumbent or future auditor.”
Ball added: “Now that the regulators are on the home straight, time is running out for anyone who thinks they can start planning for these changes some other time.”
Research by Proxima, published in December 2014, found 85 FTSE 350 companies had switched auditor since 2011, compared with 40 in the decade prior to that.
In June Barclays appointed KPMG as its auditor, replacing PwC which had been the bank’s auditor since 1896.
The FRC published guidance in 2013, Audit Tenders, Notes on best practice, to assist companies with the procurement process.