The audit market continues to transform. Figures released this week show that BDO is now the biggest auditor in the UK by the number of listed audit clients.
Leapfrogging Big Four leader PwC, BDO now has 310 audit clients across the AIM and the FTSE main market, to PwC’s 307.
Dubbed a “challenger” firm, BDO’s rise is the first time a non-Big Four firm has lead the rankings for number of audit clients. The firm believes that this marks a “significant shift” in boardroom perceptions of non-Big Four firms.
However, BDO holds no FTSE 100 clients, a sector still dominated by KPMG with 29, Deloitte and EY on 24 and PwC on 23.
According to figures from Adviser Rankings, BDO has made headway in the FTSE 250 audit market, putting together 15 new clients this year, up on six in November last year.
PwC remains a powerhouse in this group of clients with 73, over KPMG on 58, Deloitte on 50 and EY on 47. BDO’s FTSE 250 clients include Oxford Instruments, Playtech, AJ Bell and Gamesys.
The FTSE SmallCap market sees BDO’s competitiveness begin to tell, with 36 clients giving the firm fourth place ahead of even Deloitte (33).
However, it is in the AIM market that BDO’s presence is felt most forcefully, with 169 clients, ahead of its nearest rival PwC on 86.
While BDO acknowledges its grip on the AIM audit market, recent growth has come through small cap firms. The firm notes that 20% of FTSE SmallCap audits are now undertaken by challenger auditors.
Success could have been bigger. While BDO has won 35 listed clients in the past 12 months, many audit appointments were deferred due to the pandemic.
According to Scott Knight, the firm’s head of audit and assurance, the current trend will continue.
“Many tenders have been deferred this year due to pandemic-induced disruption, but we’re confident the market will continue to move in the current direction throughout 2021 as companies seek more choice and invest in quality.”
Others see permanent change under way. Andrew Parson of Adviser Rankings says the changes are likely the result of market reforms introduced in 2016 to force more frequent auditor rotation. Though aimed at large large company audits, members of AIM and the SmallCap market have adopted the reforms as best practice, he says. And he predicts more change to come.
“The EU reforms, regarding the tender process for the larger quoted companies, will see a permanent change in the audit market that we are already seeing,” says Parson.
The UK audit market is set to go through further changes once the government finishes consultation on three reports. The Brydon report looked at the purpose of audit, the Kingman review examined regulation and the Competition and Markets Authority looked at competitiveness in the audit market.
Key recommendations include the creation of a new regulator, and the operational separation of Big Four audit firms from other services.
However, it remains unclear which way government will go on the huge number of recommendations across the three reports.
BDO’s success suggests the UK audit market is transforming. However, though FTSE 100 audits have moved around the Big Four, the index has yet to see the entry of a permanent new auditor. That would signal a profound shift.