The number of audit firms that have resigned from audits in the UK has risen by 21% in the year to 30 September 2019, up from 190 the previous year, according to Thomson Reuters.
The firm said audit firms are being encouraged by the UK’s accountancy watchdog to “drop unprofitable clients from their client rosters”, which may have “helped drive the rise in audit resignations”.
Additionally, the FRC said it wants audit firms to raise fees for audit work to reduce the “risk of the work being used as a loss-leader”.
Thomson Reuters said acting as the auditor for clients can help accountancy firms “attract more profitable non-audit work”, such as consultancy and tax work from the same client.
However, the concern is that using audit as a loss-leader might mean that audit work is not undertaken to the same “high quality” that it would be if it were the sole revenue stream from that client.
Brian Peccarelli, chief operating officer, customer markets at Thomson Reuters, said: “It seems that audit firms are now looking far more closely at which clients they want to work for.
“Audit firms have responded to regulatory pressure and are now pouring far more time and resources into audits. Doing this has an obvious impact on costs.”
He added: “They are also investing heavily in AI, big data and other technology in order to improve audit quality and keep costs under control.
“However, there is an increasing acceptance amongst regulators and the profession that audits must be properly charged for. With the FRC increasing the level of fines it imposes on audit firms it is also understandable that audit firms will want to review their relationships with “high risk” clients.”