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Audit Analytics: transparency reports across Europe

More than six months have passed since the Brydon Review announced its recommendation to create a more transparent audit profession. In the wake of recent scandals involving companies such as Thomas Cook and Patisserie Valerie, these changes may be long overdue. While audit firms are already investing significant effort into creating long-winded, complex transparency reports, they are not providing the insight requested, according to Krystle Beaubrun, research analyst, and Maripat Brown, research team lead at Audit Analytics

The FRC noted in its September 2019 AQR Thematic Review that these reports are “not visible enough and ineffective”. Additionally, the regulatory body noted that the reports are “too long and overly positive to be useful”.

To emphasise, PwC’s 2019 report is packed with 134 pages of information. KPMG provided 92 pages in its 2019 report. However, neither compare to Deloitte’s two transparency reports in 2019, one specifically being for local audits.

According to Article 13 of the Audit Regulation of 2014 (Regulation EU 537/2014), a statutory auditor of a public interest entity (PIE) must publish an annual transparency report on the firm’s website, at the latest, four months after the end of each financial year.

The reports must include detailed information about the firm’s structure – network and locations, governance and internal quality-control system – including the last quality assurance review and total turnover broken down by types of revenue. For the purposes of independence, they must also disclose the names of every PIE they have audited in the past year.

Audit Analytics, an independent research and data provider, collects and analyses transparency reports, making it easy to identify the auditors of PIEs in the UK and across the European Economic Area.

Since 2017, overall market share has remained relatively consistent, with the Big 4 firms covering more than 70% of the market each year. The next four firms averaged 16%, and the remaining 28 firms combined consistently claimed less than 10% each year.

Of the Big 4, only Deloitte reported a year-on-year increase in the number of PIEs audited – from 267 in 2017 to 343 in 2019. The other three firms reported an average decrease of 100 entities from 2017 to 2019, with KPMG’s reports showing the largest drop – from 710 PIEs in 2017 to 542 in 2019 – losing 5% of its PIE clientele over the three-year period.

Immediately following the Big 4 is BDO, whose market share doubled between 2017 and 2019, reporting 170 PIE clients in its fiscal year ending 5 July 2019. A portion of this is attributable to the merger with Moore Stephens in February 2019. Looking forward, BDO’s July 2020 report is expected to show an even greater increase in market share among all PIE clients, as it has picked up a number of FTSE 350 audits in recent months. 

Grant Thornton, which in April 2018 pulled out of the FTSE 350 audit market, has increased its number of PIE clients by 50% since 2017. Like BDO, Mazars also doubled the number of PIE clients over the three years analysed, yet still claims just 4% of the market in 2019. Crowe UK finished 2019 with just 3% of the market, according to the number of PIEs reported.

The remaining firms that account for the final 5% of the PIE market in 2019 are led by UHY Hacker Young, RSM UK Audit, Nexia Smith & Williamson Audit (which has yet to publish its 2019 transparency report), PKF Littlejohn and haysmacintyre. Only eight other firms reported PIE audits in 2019, with four reporting just one PIE client.

Although this analysis shows that mid-tier firms are increasing their number of PIE clients and that the majority of the Big 4 are auditing fewer PIEs, the changes themselves are too minuscule to have any significant impact on the overall market share of PIEs when comparing the Big 4 to all others.

Nevertheless, market share competition remains tight among these entities, and having some insight into the audits through transparency reports is invaluable.

While the information and disclosures provided within these reports are still not quite where users would like them to be, it is encouraging to know that the audit profession is striving to increase overall levels of transparency.


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