Audit Income of the Big Four Firms Jumps After Rise in Fees

The audit revenue of the big four accounting firms expanded at a multiyear-record rate in 2019, far surpassing their less prominent competitors, as the groups increased prices to neutralise the effects of a steadily harsh regulatory environment on incomes.

At the UK audit divisions of KPMG, PwC, EY and Deloitte, total fees climbed by 7% to almost £2.3 billion last year, according to the most recent annual review of the market by the Financial Reporting Council.

The the surge in 2019  is significantly bigger than the 1.7% jump in audit fee income at the big four firms in the previous year.

KPMG, EY, Deloitte and PwC have upped their fees and deserted risky clients in the last two years amidst closer evaluation of their work from regulators. The big increase in audit revenue might spark worries regarding the continued dominant control of the big four over the  audit sector, especially in the United Kingdom.

The companies audit all the FTSE 100 firms and all but 21 of the FTSE 250 despite moves by politicians and regulators to enhance choice in the market.

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The surge in audit revenue comes in spite of the 21% slump in the big four’s earnings from consulting advice services to audit clients, which the FRC described as a “positive market shift.”

The big four aspire to exit non-essential consulting work for audit clients in the FTSE 250 by the end of this year following pressure from politicians as well as campaigners.

Yet nearly one-fourth of the entire audit fees – including fees from non-listed clients – are still got from consulting work at the firms, figures from the FRC revealed.

In 2019, the regulator firmed up the regulations on what advisory services auditors could offer to listed clients in a bid to fortify audit autonomy after a series of scandals.

The leap in audit revenue comes ahead of regulatory intervention in the UK that will compel accounting groups to partly divorce their audit and consulting practices. KPMG, Deloitte, EY and PwC have a deadline of this month end to table their blueprint for the operational separation of their audit units by 2024.

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It is the first overhaul of the companies since the crash of the UK outsourcer Carillion in 2018 spurred calls for huge reforms of the audit market to accelerate competition, terminate conflicts of interest and bolster regulatory surveillance.

“The latest data across the firms reveals some welcome market developments as the FRC continues to drive audit quality improvements

“Improving choice and resilience in the market also remains a major focus ahead of wider government reform and planned operational separation of the audit practices of the Big Four,” ,” said David Rule, executive director of supervision at the FRC.

The audit firm, which are all present in Nigeria, do not yet face regulatory scrutiny over the combination of audit and advisory work to the same clients. In South Africa, major scandals have erupted, most notably, overcharging for advisory work rendered to figures and companies closely associated with massive corruption that is widely described as “state-capture” under the highly controversial former South African President,  Jacob Zuma.

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