The audit market in 2018

201. The Competition Commission recommended remedial measures to improve competition in the audit market. These were enacted by a 2014 Order by the Competition and Markets Authority (CMA), which replaced the Commission.536 FTSE 350 companies must put their statutory audit out to tender at least every 10 years, and the maximum tenure is 20 years.537 Measures were also taken to strengthen the accountability of the external auditor to a company's audit committee and reduce the influence of management.538

202. There is little sign, however, that those changes have had any substantial impact on the audit market. In 2016, the Big Four audited 99% of the FTSE 100 and 97% of the FTSE 250.539 This dominance has been almost constant since the demise of Arthur Andersen. If anything, the Big Four has further strengthened its grip. In 2016, it audited 75% of listed firms outside the FTSE 250 for the first time since 2006. The Secretary of State for Business, Energy and Industrial Strategy has argued that "increasing capacity in the FTSE 350 audit market would clearly be beneficial".540

Figure 9: Sustained market domination by the Big Four

In March 2018, Grant Thornton, the sixth biggest UK firm in terms of audit fee income,541 announced that it would no longer compete for FTSE 350 audit contracts.542 Grant Thornton explained that "structures in the market" made it "impossible" for the company to succeed.543

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536 Competition and Markets Authority, CMA finalises audit changes, 26 September 2014

537 Subject to transitional measures

538 Competition and Markets Authority, CMA finalises audit changes, 26 September 2014

539 Financial Reporting Council, Key Facts and Trends in the Accountancy Profession 2017, July 2017, p 45

540 Letter from the Secretary of State for Business, Energy and Industrial Strategy to the Chairs, 30 April 2018

541 Behind the Big Four and BDO in 2016. Grant Thornton was the fifth biggest firm in terms of total fee income, incorporating non-audit services.

542 'Grant Thornton exits audit market for big UK companies. 'Financial Times, March 29 2018

543 As above.