EY HAS REPLACED PWC as auditor for Dignity, following the FTSE 250 funeral provider’s decision to cap non-audit fees in its contracts.
Dignityr introduced a 50% annual cap on fees from non-audit/audit work at the start of the year, after a third of its shareholders voted against PwC’s reappointment as auditor at its 2013 AGM due to the Big Four firm’s “relatively high” non-audit fees.
In April, PwC confirmed it would step aside following this month’s AGM. The subsequent competitive tender was limited to EY, KPMG and Deloitte, as per the terms of Dignity’s secured notes.
Under Dignity’s policy, EY will be unable to earn more than 50% of the annual audit fee from non-audit work, unless it is required to conduct the work for regulatory reasons or its use “represents a material time/cost benefit” during a transaction.
Audit committee approval will be required if EY is set to receive more than 20% the annual audit fee in non-audit work, Dignity added.
In 2013, PwC received £1.2m for non-audit services, alongside £700,000 for tax and other advisory services, compared to its £200,000 audit fee. Dignity confirmed PwC is free to continue its non-audit work for the company going forward.
The decision to cap non-audit fees comes after European politicians agreed sweeping reforms in April that force limit the amount of consulting and tax advice companies can apportion to the firms that vet their books.
The reforms, which are part of an attempt to instil greater competition among the audit profession, impose a 70% cap on the fees generated by firms for non-audit work, while certain non-audit services, such as tax advice and services linked to financial and investment strategy, have been banned altogether.
According to research carried out by Manifest, the proxy voting agency, for Accountancy Age, 13 companies in the FTSE 100 paid out more than 70% of audit fees for non-audit services over the last three years.
For instance, William Hill paid out 163% of its audit fee to auditors Deloitte for non-audit work, while Admiral and London Stock Exchange Group spent 114% each.
In 2013, London Stock Exchange group paid auditors PwC £2.9m in non-audit fees in 2012 and £0.9m in 2013, compared to £1.4m and £1.6m in audit fees over the same period. The majority of the non-audit fees related to corporate finance work in relation to mergers and acquisition advice provided by PwC, which has since been replaced as auditors by EY.