• Register
Return to: Home > News > Assurance and Accounting > UK FTSE350 underprepared for audit rotation rules

UK FTSE350 underprepared for audit rotation rules

Three in five FTSE350 companies are yet to prepare a full strategic plan around audit rotation rules, which is due to take effect in June 2016, according to an EY survey of FTSE 350 business leaders.

The survey also found one in five companies are 'woefully unprepared' for the incoming changes.

While over half of FTSE100 have already changed their auditor in light of incoming rules, the FTSE350 companies still have some way to go. According to EY managing partner of assurance in the UK & Ireland, Hywel Ball, less than a quarter of the FTSE350 companies have tendered so far.

The survey found that the main risks around changing auditor include the change in view of existing accounting judgment (42%), increase in audit costs and the lack of understanding of the business.

The majority of the respondents (57%) expect the transition cost to amount to 10-20% of the current annual audit fee.

The survey also found that 61% respondents say they are planning to invite tenders from at least one non-Big Four firm. However, according to EY, in the last six months there have been 25 audit tenders completed by FTSE 350 companies but none have been awarded to a non-Big Four firm.

Non-audit services

A significant majority, 80%, said they are likely to tender for non-audit services at the same time as audit contracts. In addition, 100% of respondents currently procure non-audit services from their current audit provider. However, the EU audit reform rules bring several restrictions on offering non-audit services to audit clients. EY's managing partner for tax in the UK, Jason Lester, warned that 80% of the companies they surveyed expected to tender for their audit in two to five years' time, "which will be after the new non-audit restrictions come into force this summer".

"These restrictions mean that many companies will have to review their non-audit professional services providers before they pick their auditor," Lester said. He further added that the survey findings show that while most are aware of the rules around capping fees for non-audit services, "fewer people are aware of the prohibition on services that your auditor can provide, in particular tax services."

The survey also found that business leaders are embracing the positives in relation to the rules - the top three being: fresh insight into the business, positive impact on investor sentiment and opportunities to enhance non-audit services.

EY surveyed 100 CFOs, tax directors and audit committee chairs.

Top Content

    South Africa: sensing new opportunities

    It has been an interesting couple of years for the profession in South Africa. A number of high-profile scandals have brought the profession and the role of auditors into sharp public focus, brewing a distrust towards accountants and a large expectations gap. Joe Pickard reports.

    read more

    Ghana: a quest for consistency

    Ghana’s current economic profile would suggest a fertile landscape for purveyors of accounting services. But inconsistent approaches to compliance and application of standards – coupled with problems in the banking sector and consequent liquidity constraints – have created a challenging environment. Paul Golden writes.

    read more

    Drone technology: audit takes to the skies

    The movement towards a digitised era has already impacted the auditing profession in a number of ways, from blockchain to artificial intelligence. Now firms are taking to sky and using drone technology in their audits. Mishelle Thurai speaks to Big Four firms to find out more.

    read more

    SBC: a new alliance joins the market

    Jonathan Minter speaks to Paul Tutin, chair of founding firm Streets Chartered Accountants, about why the business and its European partners took the decision to launch their own association.

    read more
Privacy Policy

We have updated our privacy policy. In the latest update it explains what cookies are and how we use them on our site. To learn more about cookies and their benefits, please view our privacy policy. Please be aware that parts of this site will not function correctly if you disable cookies. By continuing to use this site, you consent to our use of cookies in accordance with our privacy policy unless you have disabled them.