European audit market reforms could restrict business’ choice

The changes, which are set to take effect in 2016, will limit the amount of money auditors can make on non-audit services. Some activities, such as tax and investment-related advice, will be banned.

Ian Morrison, PwC regional leader for Yorkshire and the North East, told The Yorkshire Post clients could find themselves with fewer options at audit tender.

He said: “To run a proper competition, (clients) often want all four of the Big Four to be pitching.

“Where they’ve got one of those firms as their ongoing tax adviser, or another firm on a consulting project, choice of auditor is going to start to get restricted.”

The changes, which also compel businesses to tender their audits every 10 years and change provider every 20, are aimed at increasing competition in the market dominated by PwC, KPMG, Deloitte and EY.

The Department for Business, Industry and Skills (BIS) is yet to consult on UK-specific measures.

Non-audit services can often be more lucrative than the audit contract itself.

However, Mr Morrison said he does not forsee a market shift towards other services, but that PwC will have “a more balanced portfolio” going forward.

Arif Ahmad, senior partner at Leeds, said the balance of audit to non-audit work will be dictated by clients.

Mr Ahmad said a case had arisen where PwC pitched for the audit and a consulting project at a FTSE 100 company. After winning both, the client had to choose which PwC should take.

“We are a client service organisation,” he added. “If they want us to pitch for a piece of work, that’s what we’re going to do.”

The proposed reforms are already affecting the market, with long-standing FTSE 100 contracts changing hands. In March, Barclays said it will end its 120-year relationship with PwC.

PwC’s Yorkshire offices reported nine per cent revenue growth in the year to June 2014, with wins in audit for Morrisons and ghd.