Based on data about audit fees in the US, German, UK and French markets, a survey of 200 US CFOs in major organisations, and in-depth interviews with audit committee chairs, the findings show a stark contrast between global and UK views on auditor choice. The firm says FTSE 100 audit fees are edging close to $1bn, hitting $935m last year.

While globally, 80% of audit clients said there was sufficient choice in the market, in contrast nearly one third of UK respondents report there was not enough choice.

Edward Haigh, director of Source Global Research, said: ‘Given that competition is increasing, one would expect fees to fall. But average fees are actually moving up at this very high end of the market.

‘And it is not regulation-light outliers driving those numbers up. For example, the UK’s FTSE 100 see a high degree of audit firm turnover while fees have jumped 10% over the last year.

‘Compare that to the far more modest 5% increase seen in the MAFR-free US market.’

These findings echo those of the Accountancy FTSE 100 2017 auditor survey which found that while the value of the FTSE 100 audit market has increased significantly, there has been no downward pressure on fees, those with the smallest number of audits have increased their share, and those in the second year of new auditors are more often than not seeing an increase in fees.

Haigh said: ‘Regulation is not really achieving what it is set out to achieve. Competition remains between the Big Four, and this is having the unintended consequence of pushing up fees—in part because these firms are spending much more time pitching for work.’

Audit clients interviewed for the Source report said that quality is on the rise, because the requirement that they regularly put audits up for tender has inspired them to take a fresh look at their needs, which has made them more demanding.

While Source found the share of non-audit work performed by audit firms is in decline (11% down across the eight markets considered), the report says that this is largely a result of improved governance practices, with clients backing away from auditor relationships that could become—or even just appear to be—overly familiar. As a result, non-audit fees are just 19% of audit fees among the FTSE 100.

The report shows PwC leads the Big Four for the number of audit clients across the global sample and the FTSE 100—where it audits 34 FTSE 100 companies—collectively charging fees of £363m. Out of the Big four firms, PwC also achieved the highest average audit fee per client for the FTSE 100 (£10.7m) and globally ($14m).

The analysis argues that digital solutions-especially those relating to data and analytics-have huge potential to increase the quality of audit , while new technology promises to open the audit field up to a host of new players which, unlike today’s traditional firms, have the scale and scope to give the Big Four a run for their money.

B.J. Richards, senior editor at Source Global Research, said: ‘It is not difficult to imagine a tech company on the scale of Google or Amazon entering the audit space and quickly becoming a major global player. It is also not difficult to imagine that, with their vast resources and deep data and analytics know-how, these new market entrants could deliver high-quality real-time auditing that would force all players to up their game.’

The report concludes that regulators will continue to have a critical role in ensuring audit integrity and ensuring public trust in audit, a role which it argues becomes even more important as non-traditional players enter the field.

The Source Global Research report, The Audit Market in 2018, is here

Report by Pat Sweet