Accountants outside of the industry’s ‘Big Four’ will continue to suffer from “institutional prejudice” for another decade despite incoming regulatory reforms, the managing partner of BDO has warned.
Simon Michaels told The Independent that BDO and other leading mid-tier auditors, such as Grant Thornton, will need 5-10 years to “break the stranglehold” of KPMG, PricewaterhouseCoopers, EY and Deloitte have on the listed audit market.
They run the numbers of more than 90 per cent of the FTSE 350 and almost the entirety of the blue chip index of Britain’s 100 biggest quoted companies. However, the Competition Commission last month ordered that FTSE 350 companies put the audit role out to tender every 10 years to help break what are perceived as damagingly cosy relationships with their existing Big Four accountants.
Mr Michaels, though, has only targeted increasing BDO’s market share in the FTSE 350 from 3 per cent to 5 per cent by 2018. The mid-tier firms believe that directors at leading corporates fear risking their reputations by not appointing one of the major-league accountants.
He said: “While the Competition Commission has been really helpful in pushing open the door, institutional prejudice is going to take a bit longer to break. We’ve experienced that for sure: it’s the IBM factor, in that nobody ever lost their job for hiring IBM.”
The European Union is looking to push through its own reforms which could be tougher than domestic regulations but must be confirmed by next year. Mr Michaels said that it would be “another piece in the jigsaw” should the EU make it mandatory to swap auditors after a set number of years.
BDO announced its full-year results today, confirming the group’s position as the number five auditor globally ahead of Grant Thornton. Fee income increased by more than 7 per cent to $6.45bn (£3.95bn), while UK audit turnover was up 16 per cent to £111m.
BDO’s figures were boosted by its merger with smaller rival PKF in April, which also led to a 40 per cent increase in staff. Overall British fee income, which included advisory and tax work, was £312m.
“[Last year] saw us working with brands such as Snow & Rock, Fever Tree, Warner Bros and Christian Louboutin, and with the CBI to champion mid-market businesses as central to the UK’s growth,” added Mr Michaels. “The economic outlook is improving and we need to continue to invest.”