But more switches expected from October when FTSE 350 businesses are forced to tender their audits
Just 6% of companies appointed new auditors in the last year*, ahead of the introduction of new rules intended to shake up the audit market, shows research by Bloomsbury Professional, a leading tax and accounting information group.
Bloomsbury Professional says that the number of auditor switches is expected to increase from October, when new Competition & Markets Authority (CMA) rules intended to improve the objectivity and independence of audits will come into effect. The new rules will require all FTSE 350 companies to put their audit contracts out to tender at least every ten years.
In addition, FTSE 350 businesses that do not put their audit up to tender after five years will be required to explain when they will tender the contract, and why they have not done so already.
Bloomsbury Professional says that reaction from the audit profession has been understandably mixed. Accountancy firms outside the Big Four are heavily in favour of the mandatory tendering of FTSE 350 audit contracts.
Martin Casimir, Managing Director of Bloomsbury Professional, explains:
"The mandatory tendering of FTSE 350 audits is almost certainly going to cause a sharp rise in changes of auditor, but it seems the vast majority of businesses are not going to make changes until they have to.
"Audit firms outside the Big Four see mandatory tendering as a great opportunity to increase their client bases – the more often they can pitch for new audit business, the bigger their chance of winning it.
"However, the Big Four's experience in auditing large and complex businesses is still likely to be the biggest selling point for much of the FTSE 350. Smaller audit firms will find making serious inroads into the client base of the likes of PwC, EY, Deloitte and KPMG fairly slow going."
Bloomsbury Professional says that many more FTSE 100 companies have already announced that they are making plans to put their audits out for tender in the near future.
The previous high in changes of auditor was in 2009, when 13% of companies switched. Bloomsbury Professional says that this rise was partly down to businesses cost-cutting after the impact of the financial crisis, and seeing audit fees as an area to reduce spending.
Says Martin Casimir: "The turbulence in the audit market after the financial crisis has now settled, with fewer businesses making switches in recent years.
"We still live in a world where a FTSE 100 company switching auditors makes headlines, but the new tendering rules are likely to change that. Decades-long relationships between businesses and their auditors may become a thing of the past."
*Includes companies qualifying for an audit with a turnover in excess of £6.5m who changed auditors in 2011/12 (most recent full reporting year, based on over 49,000 companies).