UK: EY chair believes higher audit fees will encourage competition

A significant increase in UK audit fees should encourage smaller firms to challenge the dominance of the Big Four, the UK chairman of EY stated. 

According to the Financial Times, Steve Varley, who has been chairman of EY UK since 2011, made the prediction as the Big Four auditor that charging companies more for vetting their books had helped lift annual profits. Over the summer, EY warned its largest listed British clients, which include Vodafone, Burberry, and Aston Martin Lagonda, that they would have to pay more for audits because of “unprecedented market forces.”

The UK accounting industry faces the largest overhaul in decades amid intense scrutiny from politicians and regulators.

“The reaction from clients has been positive overall, as boards know it will deliver higher quality audits,” Mr Varley said of the jump in fees. “None of them want to get an invitation to appear before a select committee inquiry.”

The rise in audit fees being charged by EY has been mirrored by Deloitte, PwC, and KPMG, which together make up the Big Four accountants. Last year Grant Thornton, a mid-tier firm, dropped out of competing for the audits of FTSE 350 companies, citing the high cost of pitching, comparatively low fees, and the likelihood it would lose out to a Big Four firm. 

Mr Varley said EY was conducting “various scenario planning,” including for a forced split of its audit and advisory functions, which is being considered by the British government.  

“We believe the right set of comprehensive changes are needed to address corporate reporting, the scope of the audit, a strengthened regulator, and the accountability and regulation of both auditors and company directors,” Mr Varley said.

Full Content: Financial Times

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