Implications of the CMA’s Call for a Joint Audit among the FTSE 350

Last week, the Competition and Markets Authority (UK) released an update paper regarding its study of the audit market in the United Kingdom. In the paper, the CMA made a number of striking proposals that, if implemented, would lead to drastic changes in the audit market landscape in the UK.

Among the proposals was one in particular that jolted followers of the market: a call for joint audits.

The market structure needs to change to ensure that there are enough realistic alternative audit providers so that every incumbent auditor feels another firm breathing down its neck, ready to serve shareholders’ and the public’s interests better. Achieving this after 15-plus years of an entrenched Big Four will not be easy; but no direct attempt has yet been made to do this.

We propose that FTSE 350 audits should be carried out jointly by two firms, at least one of which should be from outside the Big Four. This will give challenger firms access to the largest clients, while allowing fora cross-check on quality, as each auditor reviews the other’s work.

CMA Update paper, 18 December 2018

The implications of such a requirement are far-ranging, but perhaps the first and most important question revolves around the cost: how much more expensive would it be to hire two auditors rather than one?

There has been some research into this question already. For example, joint audits in Denmark were tried and then abandoned due, at least in part, to the high cost of implementing and managing dual audits. London Economics, a consulting firm, published a thorough analysis of joint audits back in 2012 in which they found that the evidence suggested an increase of fees between 25%-32% associated with a joint audit. (“Study on Joint Audits”, July 2012)

Given that (admittedly brief) overview of the context, we’ll provide some figures from more recent financial statements using our European Audit Fees database to compare the cost per €1 million in revenue between the SBF 120 listed on Euronext Paris and the FTSE 100 listed on the London Stock Exchange.

Population and Examples

We looked at fiscal 2017 audit fees for the SBF 120 of the Euronext Paris (which includes all members of the CAC 40) and the FTSE 100 of the London Stock Exchange. Our population consisted of 119 companies listed in Paris and 100 listed in London. 

SBF 120
Not all of the SBF 120 are headquartered in France, and not all are subject to the joint audit requirements that French companies must comply with.

Of the 119 companies from the SBF 120, 110 are headquartered in France, 3 in the Netherlands, 3 in Luxembourg, and then one each in Belgium, the UK, and Switzerland. All 110 French companies (and none of the others) had joint audits in 2017.

FTSE 100
Likewise, not all the FTSE 100 companies are headquartered in the UK, but this does not affect whether any of them might have a joint audit. As a matter of fact, none of the FTSE 100 use a dual audit arrangement.

Some Examples


Audit fees and revenue figures were reported by these companies in either Euros, Pounds, or US Dollars. To perform this analysis, we converted all figures to EUR based on the exchange rate as of the date on the balance sheet for individual companies.

Next, we split the 219 companies into four equal buckets based on quartiles of revenue.

The 4th quartile represents companies in the top 25% of revenue, the 3rd quartile is companies with revenue between the 50% and 75% percentiles, and so on. This is based on the assumption that fees are not strictly linear to revenue and that, in rough sketch, companies of a similar size will have similar audit fees.

Then we took the fiscal 2017 audit fees for each company. For purposes of this analysis, we excluded audit-related figures due, in some part, to variations in fee disclosure patterns in France and the UK. (Most of the rest of Europe tends to follow the standard Audit, Audit-Related, Tax, and Other paradigm common around the globe, but France and the UK both have not-insignificant variations on that pattern.)

For a simple way to compare the magnitude of audit fees between companies, we calculated the cost of the audit per €1 million in revenue. Among all companies in our 4th quartile of revenue, the average cost of an audit was €492 per €1 million in revenue. So, a typical company with revenue of €25 billion would be expected to have an audit fee of around €12.3 million (492 x 25,000).

Lastly, we trimmed the data by excluding the five largest and smallest outliers.

Comparison of Fees Between Single and Joint Audit 

In the following chart, we show a comparison of the cost of an audit per million euros of revenue between companies audited by one auditor versus those that use a joint audit.

As one can see, at the top of the market – companies in the fourth quartile of revenue, i.e., greater than €20.4 billion – the cost of a joint audit is essentially equal to the cost of an audit using only one auditor. A joint audit costs about €492 per million euros of revenue, compared to €491 for a single audit.

In the middle market, however, it appears that joint audits begin to cost more. A joint audit in the third quartile costs about 28% more than a single audit and about 10% more, on average, in the second quartile. In the bottom quarter of the market – companies with revenue up to €2.2 billion – the cost of a joint audit is 28% more than a single audit.

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