EY UK spent the most out of the Big Four on hospitality for its FTSE 350 audit clients in 2018, a letter to the Business, Energy and Industrial Strategy select committee (BEIS) chair Rachel Reeves has revealed.
The firm spent a total of £98,213 ($128,750) on its FTSE 350 audit clients in 2018 compared to Deloitte’s £96,179, KPMG’s £51,889, and PwC’s £45,000.
In 2016, the UK’s Financial Reporting Council’s (FRC) Revised Ethical Standards instructed firms to establish policies on the nature and value of gifts, favours and hospitality.
As part of BEIS Future of Audit inquiry, Reeves wrote to each of the Big Four in February to ask how much was being spent on its FTSE 350 audit clients. She also asked about how partner remuneration is linked to audit quality, and how often audit fees exceed those initially prosed to clients.
BEIS launched its inquiry in November 2018, following a number of high-profile company collapses in the UK over the last couple of years, such Carillion and British Home Stores, which drew attention to the work of their auditors. During an inquiry into the collapse of Carillion, issues of conflicts of interest were highlighted.
Following the heightened public and political attention on the audit market a number of review were launched last year. The Competition and Markets Authority (CMA) launched an investigation into how competition can be increased in the FTSE 350 audit market, the Kingman review was launched to investigate if the FRC is still fit for purpose, and the Brydon review was launched to see if audit standards are still fit for purpose in the 21st century and to examine the problem of the ‘expectations gap’.
While BEIS is due to publish its report on the Future of Audit tomorrow, The CMA and Kingman published their reports at the end of last year. Both reports suggested wide ranging reforms, such as the CMA’s proposal to introduce joint auditing and the Kingman review calling for the FRC to replace by a new body, the Audit, Reporting and Governance Authority (ARGA).
A spokesperson for the FRC said: "We tackle the firms on their hospitality breaches. If we feel their controls are lacking sufficiently we can and have made reference in our annual AQR reports to that fact."
