Auditors are returning from the summer holidays and dusting off their pitch decks, with more than a billion pounds’ worth of audit fees up for grabs over the coming months.
At least ten FTSE 100 companies are due to begin audit tender processes later this year, including Rolls-Royce, the jet engine maker, Barratt Redrow, the housebuilder, Intertek, the testing group, and Mondi, the packaging business.
The most lucrative deal, however, will be to sign off BP’s accounts. The oil giant pays its current auditor, Deloitte, £66 million a year to check and approve its accounts.
Other big tenders that will be put to the market soon include National Grid, which manages the high-voltage electricity network across England and Wales, which pays Deloitte £21.1 million a year, and GSK, the drugs giant, whose £21 million-a-year deal, also with Deloitte, runs until the end of 2027.
The other Big Four professional services firms — EY, PwC and KPMG — will be hoping to pick up some of their rival’s work. Their audit teams will be busily gathering information and preparing presentations to boost their chances.
The cost of putting together even an unsuccessful pitch for a big company’s audit can run comfortably above £1 million. If they get the job, however, audit firms earn good money: over the course of a decade BP, for example, is likely to shell out close to £700 million in audit fees.
The combined annual audit bills of the ten FTSE 100 companies that have said they are considering appointing new auditors add up to about £140 million. Most audit contracts run for ten years, making the total value of the contracts £1.4 billion.
As part of a set of regulations introduced in 2014 to reduce the risk of auditors getting too close to senior management, large companies must run competitive audit tender processes every ten years.
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Companies can choose to stick with the same auditor, but only for another decade, at which point they must appoint a new firm. Barratt Redrow finds itself in that position: Deloitte’s 20 years will be up in 2027 and so it has asked other firms to pitch for its work from then.
The new rules were initially greeted by scepticism in the industry given that most expected companies to continue with their existing audit firm. Barclays did just that this summer when it reappointed KPMG, which is known for its work with big banks. Similarly, Centrica, the British Gas owner, gave Deloitte another ten years in July.
Audit partners, however, have been pleasantly surprised by the frequency at which companies are switching. Since the first ten-year re-tenders started in 2024, about a third of companies have changed audit firm.
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Most audit committees will begin the search for their next auditors two or three years before the expiry of their current deals. That is mainly to allow enough time for their new auditor, should they appoint one, to free themselves from any conflicts of interest, such as by winding down any consulting work they are doing for that client. The Financial Reporting Council imposes limits on the non-audit services that firms can provide to their audit clients.