The Financial Reporting Council (FRC) has published an updated overview of competition in the UK’s audit market for public interest entities (PIE).

While the report shows a small increase in market share for challenger audit firms, the audit market remains highly concentrated. The Big Four accounting firms continue to dominate, earning 98% of FTSE 350 audit fees in 2022, resulting in limited choices for businesses and ongoing concerns about resilience. 

Over the past year, and with a focus on addressing concerns in the quality of PIE audits among smaller firms, the FRC has pursued a range of initiatives targeting different aspects of market competition. These include publishing a standard for audit committees in relation to their role on the external audit, launching the FRC’s Scalebox to assist smaller firms’ entry in the PIE audit market, and exploring barriers to growth for smaller audit firms. 

Looking ahead, the report highlights the FRC’s intention to conduct market studies (in-depth investigations) that can generate proposals to improve the way the market functions with particular regard to better choice and resilience. This will allow the FRC to explore issues relating to the audit market in more detail, generating more granular information about areas of concern and suggested actions to address them.

Commenting on this, FRC executive director of regulatory standards, Mark Babington, said: “A resilient, competitive audit market focused on quality is essential to rebuild trust and confidence in corporate Britain.

“While there have been some positive steps, 98 percent market share for the big four leaves little room for challengers to emerge while maintaining high standards of audit quality. The FRC will continue to collaborate across the whole system to develop the conditions for an audit market that balances quality, innovation, resilience and true choice.”

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