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.
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.