PwC loses FTSE 100 client crown in audit pass-the-parcel
PricewaterhouseCoopers (PwC), the UK’s biggest accountancy firm, has had its crown – holding the highest number of FTSE 100 clients – snatched by rival KPMG.
It is the first time PwC has lost its position as the leading auditor of the UK’s top blue-chip firms.
KPMG now audits 28 FTSE 100 firms, to PwC’s 27, according to data compiled by Adviser Rankings. PwC maintains a healthy lead by total client market cap, and has expanded its lead among FTSE 250 firms.
There has been a substantial shift in audit clients between top firms since 2016, following the introduction of EU legislation which means companies must tender their audit contracts after 10 years, and automatically swap after 20.
Last month, Lloyds Banking Group announced it would drop PwC as its auditor at the end of 2020, closing a 153-year audit relationship.
The new rules were intended to shake-up cosy relations between companies and their accountants, and disrupt the dominance of the Big Four – Deloitte, EY, KPMG and PwC. Instead, the result has been an unprecedented opportunity for the top firms to snatch clientele from each other.
But the change has been criticised as ineffective, with the sector watchdog finding in an October report there had been “no diversification” as a result of the policy, saying it had so far simply entrenched Big Four control of the biggest contracts.
Analysis by Morning Wire shows hundreds of billions of pounds in companies’ market value – which tends to correlate strongly with audit fees– has already swapped between the top four firms, with Deloitte and EY the biggest winners so far.
Around twenty of the FTSE 100 have not swapped auditors since 2008, meaning they will have to rotate in the coming decade, putting hundreds of billions in market cap up for grabs.
There is pain ahead for PwC and KPMG, which hold the highest value of FTSE 100 audit clients that have yet to rotate. In contrast, EY has already completed nearly all its statutory swaps, with only two remaining FTSE 100 clients that it has been auditing since 2008 – 3i group and InterContinental Hotels.
The other three all have over £100bn in client market cap yet to move: these include KPMG preparing to soon lose BHP and Prudential, and PwC, which will give up Lloyds to Deloitte. Some of the biggest transfers in recent years include Royal Dutch Shell, the UK’s most-valuable firm, which transferred from PwC to EY, and HSBC, which PwC took from KPMG.
Often, such swaps are dictated more by obligation than competition: with the Big Four offering a range of professional services among close rivals, many large firms find their hands are tied when it comes to swapping accountants. Such was the case with Lloyds, whose subsidiary HBOS had been audited by KPMG, and whose rivals RBS, Co-operative Bank and Standard Chartered as all serviced by EY.
Just two FTSE 100 firms are audited by non-Big Four companies: Grant Thornton audits GVC Holdings, and BDO has the contract for Randgold Resources.
The sector is under huge scrutiny currently, with ongoing reviews being carried out into increasing competition in the sector and the effectiveness of its watchdog, the Financial Reporting Council. In January, the powerful parliamentary Business, Energy and Industrial Strategy Select Committee will begin a review of the sector. Last week, sixth-biggest auditor BDO announced it would merge with smaller rival Moore Stephens, in a bid to dominate the middle market.
A PwC spokesperson said: “When mandatory firm rotation was introduced a few years ago, we were very open and clear that this would inevitably lead to PwC’s share of FTSE 100 audits falling, So while mandatory firm rotation has not led to more choice of auditor at the large company end, it has led to a rebalancing within the market.”