There has been a marked upswing in FTSE 350 audit tenders, with the number set to almost double this year compared to 2013 with three out of four FTSE 100 listed companies who put their audit business out to tender actually changing auditor
The analysis by PwC took a snapshot of tendering activity across the UK's 350 largest listed companies last month. It estimates that there will be 56 tenders in total in 2014 with 16% of companies reviewing their audit contracts. This compares to 30 tenders in 2013 (9%) and only 18 in 2012, a mere 5%.
There is also a clear trend towards changing auditors. Since October 2012, 75% of FTSE 100 companies which have tendered have switched auditors, while 62% of FTSE 250 and 67% of FTSE 350 companies have hired a different auditor. Overall two out of three of the 51 companies who put audits out to tender since October 2012 switched.
Tendering levels have shot up in the wake of the Financial Reporting Council's (FRC) comply or explain ten-year tendering regime started in October 2012. This requires companies to retender their audit within a ten-year timeframe or justify the reason for not doing so, such as a major merger or acquisition, or IT overhaul of the finance operation.
As of 8 July, 17 companies had completed tenders this year, 14 tenders had kicked off and seven more companies had put out notifications that they are considering tenders. There are 18 other companies expected to review their audit arrangements.
PwC says this suggests 56 companies, or one in seven of the FTSE 350, will tender this year, in advance of new EU rules on mandatory rotation which would force companies to make these changes instead of making the changes voluntarily. The firm highlights banking, energy and utilities and retail as the most active sectors for upcoming tenders.
James Chalmers, UK head of assurance at PwC said: ‘Tendering activity is at unprecedented levels. We expect between 50 and 60 FTSE 350 tenders in total this year, nearly double the number in 2013.’
‘Now that there is greater clarity on the implications of the EU rules, companies are able to make decisions on when to tender at a time that makes most sense for their particular circumstances.’
For regular news and analysis of key tax, audit and accounting developments, sign up to our thrice weekly newsletters at www.accountancylive.com/newsletter
