FTSE 100 fees paid to auditors surpass £1bn in 2021/22

Fees paid by FTSE 100 companies to audit firms have reached over £1bn for the first time this financial year, from £975.38m last year, according to new research by Thomas Reuters.  

It is reported that these companies’ audit fees increased 9% in the past year, from £798.7m in 2020/21 to £869.6m in 2021/22. At the same time, the value of fees paid by them to their auditors for non-audit work has decreased by 10%, from £166m in 2020/21 to £148.6m in 2021/22. 

As a result, the regulators of audit firms, the Financial Reporting Council (FRC), has urged audit firms to raise their fees and invest more time and money into their audit work to “ensure that audits are carried out to the highest possible standard”.

According to the FRC, it has been concerned that accounting firms have been deliberately undercharging clients by offering audit services at low prices. The FRC has a suspicion that firms have been winning contracts by undercutting competitors and then cross-selling more profitable tax and consulting services.

The FRC has also called on the Big 4 to separate their audit practices from their consulting arms, in a bid to improve audit quality. The regulator hopes that separating these functions would lessen the incentive for firms to lower audit prices to secure lucrative tax or consulting contracts.

The FRC has capped the scope of non-audit work a company’s auditor can do alongside the audit, to 70% of the average fee for the last three audits. As a result of this, auditors have moved their focus away from non-audit work for their audit clients.

Kyle Gibbons, managing director Europe of confirmation at Thomson Reuters, said: “There’s a general acceptance that if audits are going to be thorough and of high quality then those fees need to go up.

“The regulator is also going to be pleased that audit firms are selling less non-audit advice to their audit clients. There has been a long running concern that this jeopardised the ability of the auditors to challenge management.”

He added: “The new ISQM 1 requirements could put more pressure on the auditor’s workload  as they are forced to dedicate senior resources to ensuring compliance.”