'Big four' auditors increase market share despite heavy criticism

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
The PricewaterhouseCoopers (PwC), along with EY, KPMG and Deloitte make the 'big four' auditors. Photo: Jack Taylor/Getty Images

The ‘big four’ accountants continue to dominate the UK auditing market, despite recent heavy criticism of their work on corporate failures such as Carillion, BHS, and Thomas Cook.

EY, KPMG, PwC, and Deloitte — collectively known as the ‘big four’ — audited 81.8% of all UK-listed businesses in 2018, according to figures from the Financial Reporting Council (FRC). Market share was up from 80% in 2017.

The ‘big four’ also audited 100% of the FTSE 100, Britain’s 100 biggest listed businesses, up from 99% in 2017.

Fee income at the ‘big four’ rose by 4.7% to £10.9bn, while income at accountants outside the top table fell by 8.1%.

Consultancy work continues to dwarf auditing fees at the ‘big four’, despite criticism of the practice. The accountants made just £2.1bn from auditing, with 72% of revenues coming from non-audit work like consulting. That was up from 70.4% in 2017.

MPs have heavily criticised the ‘big four’ for failing to challenge accounts for companies such as Carillion, BHS, and Thomas Cook, all of which subsequently collapsed.

An inquiry into the collapse of Thomas Cook heard last week how PwC earned £21m in consultancy fees from Thomas Cook during the years it was also auditing the business.

READ MORE: MPs call for 'full' break up of 'big four' auditor 'cash-cows' after failures like Carillion

Rachel Reeves MP, the chair of the Business, Energy, and Industrial Strategy (BEIS) select committee, accused the firm of a conflict of interest over the dual roles, which is no longer allowed under the rules. Representatives from PwC insisted that there were strict divisions within the firm to prevent conflicts.

Reeves’ committee called for the break up of the ‘big four’ in a report in April.

“The ‘big four’s’ dominance has fostered a precarious market which shuts out challengers and delivers audits which investors and the public cannot rely on,” Labour MP Reeves said at the time.

“For the big firms, audits seem too often to be the route to milking the cash-cow of consultancy business.”

The ‘big four’ have voluntarily agreed to stop doing consultancy work for companies they audit and the revenues earned for non-audit work comes from clients they are not checking the books of.

However, Reeves and her committee are still pushing for the break-up of the consultancy and auditing arms. Reeves has raised the issue in recent sittings of the Thomas Cook collapse inquiry, calling for the government to reform the system.

“Splitting audit from non-audit business would be a big step to boosting the culture of challenge needed to deliver high-quality audits,” Reeves said in April.

READ MORE: Auditors had concerns about Thomas Cook going bust for years