• But the Big Four remain the go-to choice for clients
• Eighty percent of audit clients rate quality of audits as either “high” or “very high” despite numerous accounting scandals
• But over a fifth (22%) would choose either BDO or Grant Thornton
Although over two-thirds (68%) of audit clients still rank a Big Four firm as their first-choice external auditor, over half (58%) do not name their current auditor as their first choice. Despite this, large, listed companies are still not prepared to change their incumbent auditor.
This data is revealed in a report published today (9 September 2019), which also found that despite recent press coverage about the quality of audits, clients think very highly of the quality of audit work, with 80% rating it as either “high” or “very high” quality. At the same time though, over a fifth (22%) of audit clients would choose either BDO or Grant Thornton, confirming that these two firms are the leading choices outside of the Big Four and are the mid-tier firms best placed to capture some market share from them.
The report, published today by Source Global Research, surveyed CEOs, CFOs, and senior finance executives from large organisations in the US (66%) and UK (34%), all of whom have been responsible for selecting external auditors or have worked with external auditors during the audit process.
The Source report highlights two key factors benefiting the incumbent auditor and restricting more supplier churn in the audit market:
Knowledge is key – Audit clients state that the two most influential factors when choosing a new auditor are knowledge of the sector and the extent to which the auditor knows/understands their business. The current auditor is clearly already going to have a lot of firm-specific knowledge and, as a result, knowledge of the sector. This makes it difficult for an alternative firm to convince prospects that it can offer something extra in these important areas.
Complex stakeholder landscapes create inertia – This benefits the incumbent as audit committees need to be won over and it may be hard to convince committee members to change auditors, especially where there aren’t any obvious problems with the current relationship. For listed companies, shareholders will need to approve a change in auditor as well, and will need to hear a strong argument to explain why a change is necessary.
Martin White, a Senior Analyst at Source Global Research, said:
“It takes a lot of political capital for decision makers in companies to push through a change of auditor, and that may act as a block even when there is some dissatisfaction with the existing auditor.
Our research also shows that there could be an opportunity for BDO and Grant Thornton to pick up much more work if clients have a positive experience of working with BDO or Grant Thornton for advisory work, or through joint audits and audit firm rotation. This could mean that more clients may trust them to provide a high-quality audit and lean towards them as their first-choice auditor.”
Conflicts of interest
The Source report also revealed that audit clients don’t seem overly concerned by potential conflicts of interest. In fact, the majority of respondents only think auditors should raise awareness of other services during the audit or six months before retendering. Only 2% of clients think an audit firm should never talk about other services it offers.
Martin White from Source concluded:
“With mandatory audit rotation looming, the firm that can successfully raise awareness of its other services stands to gain not just revenues, but perhaps even deepened relationships with its clients. Ultimately though, we feel that innovative uses of technology may turn out to be a driver of change by allowing firms to differentiate themselves and demonstrate the possible improvements a new auditor could bring.”
For more information on Source reports contact firstname.lastname@example.org, telephone +44 (0)20 3478 1204, or visit www.sourceglobalresearch.com.