Grant Thornton, a prominent mid-tier accounting firm, is pushing for an overhaul of the UK's audit market regulations, specifically advocating for the creation of an independent body to appoint auditors for public interest companies. This proposal aims to boost competition beyond the dominant Big Four firms (Deloitte, EY, KPMG, and PwC), which currently maintain a near-stranglehold on major audits, capturing 98% of FTSE 350 audit fees. Grant Thornton suggests this independent body could operate similarly to the National Audit Office in the public sector, potentially allocating a fixed proportion of audits (e.g., 50 for the Big Four and 50 for non-Big Four firms) to foster a more diverse market and give smaller firms a fairer chance.
Ironically, Grant Thornton itself pulled out of tendering for FTSE 350 audits earlier, citing the high costs and low probability of winning bids against the Big Four. In 2016/17, the firm only held five FTSE 250 audits, valued at $2.3 million in annual fees, and had no FTSE 100 audits. This move was met with some criticism, particularly since another mid-tier firm, BDO, managed to secure three FTSE 250 audits ($1.2 million) and one sub-$1 million FTSE 100 audit. The firm clarified that its withdrawal from tendering was due to significant "buyer bias" preventing them from securing appointments they were capable of handling, despite being "plucky second" in many instances.
Despite its call for tougher regulation and its stated ambition for top-tier audits, Grant Thornton has recently been demoted from the top tier of audit supervision. Between 2016 and 2022, the firm significantly reduced its number of public interest entity (PIE) audits by over 70%, auditing only 20 PIEs in 2022. This reduction led the Financial Reporting Council (FRC) to move Grant Thornton from "tier one" to "tier two" supervision, meaning inspections of its PIE audits will now occur every three years instead of annually. The FRC clarified that this demotion reflects Grant Thornton's smaller share of the PIE market rather than a decline in audit quality. The firm has also faced regulatory fines totaling $4 million since 2021 due to shortcomings in audits for companies like Patisserie Valerie, Sports Direct, and Interserve.
