AROUND A FIFTH of FTSE 350 companies are “woefully unprepared” for the EU’s audit rotation reforms set to take effect in June, according to research from Big Four firm EY.
EY’s survey of 100 CFOs, tax directors and audit committee chairs found that 19% of respondents were unaware their company needed to tender or rotate its audit. And of those that did, almost half hadn’t yet put a strategic plan in place.
Approximately 28% of firms said they also lacked full understanding of the proposed restrictions on non-audit services, with a handful (7%) stating they had no knowledge of the changes at all.
The EU’s move is intended to open the FTSE 350 market up to more audit firms such as Grant Thornton and BDO.
Yet while 61% of those surveyed said they are planning to invite tenders from at least one non-Big Four firm, intentions aren’t necessarily becoming a reality. In the last six months there have been 25 audit tenders completed by FTSE 350 companies, but none have been awarded to a non-Big Four firm.
Last month, EY managing partner of assurance in the UK & Ireland Hywel Ball told Accountancy Age mandatory rotation could “further entrench” the Big Four’s market position, and even see them encroach on traditional non-Big Four market space. However, several non-Big Four audit partners disputed his assessment, suggesting it could take as long as ten years to see the fruits of the regulation.
Hywel Ball said: “As expected, some companies have been moving ahead of the regulations, with over half of the FTSE 100 having tendered their audit since the spectre of the regulations loomed. But we haven’t seen the same level of preparation among the rest of the FTSE 350, with less than a quarter having tendered so far.
“This was never going to be a cost free exercise. Choosing an auditor and managing the mix of non-audit services is one of the biggest procurement decisions a company has to make. It requires a major time investment when going through the tender process and then bringing the new team up to speed, all of which carries an internal cost to the company.”
The UK’s imminent exit from the EU that may now put the audit committee to the ultimate test
Audit tendering has turned from good practice to legal practice under the EU audit reforms
Businesses will have to think more strategically about where they can source those non-audit services in the future
The FRC has raised concerns that the FTSE 350 audit market remains highly concentrated among the Big Four despite high levels of tendering and rotation