Big Four auditors up advisory fee incomes as challengers capture larger share of audit work

The UK’s challenger auditing firms are increasingly capturing a larger share of Britain’s audit market, as the Big Four increasingly generate their revenues through non audit work, new data from the UK’s accounting watchdog shows.

The research shows smaller auditors upped their fee incomes at almost twice the rate of the Big Four, as the UK’s four largest accountancy firms instead bolstered their revenues through non-audit work.

The Big Four – PwC, KPMG, EY, and Deloitte – saw fee incomes from their audit businesses increase 6.5 per cent year on year, the Financial Reporting Council (FRC) figures show.

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Yet, at the same time, the Big Four accounting firms saw fees generated through selling non-audit services to their clients increase 10.3 per cent between 2020 and 2021, as the UK’s challenger firms instead saw incomes from their advisory businesses drop.

The Big Four’s higher fee incomes came as the UK’s challenger accountancy firms – BDO, Grant Thornton, PKF, Littlejohn, RSM, and Crowe – increased their own audit fee incomes by 12.5 per cent.

The higher fees came as the UK’s five major challenger firms captured a larger share of the FTSE 350 audit market last year, in auditing 24 of the UK’s biggest firms in 2021 compared to 19 in the previous year.

However, the five major challengers also saw fees from their non-audit work to clients drop by 6.8 per cent over the same period.

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The FRC research comes as the UK government is seeking to boost competition in the audit sector with a view to tackling the dominance of the Big Four firms.

The overhaul of the UK’s accountancy sector is set to see the UK government force the Big Four to share auditing documents of major listed companies with smaller challenger firms.

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