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Audit firm numbers drop as red
July, 08th 2010

The ever-increasing audit threshold, and weight of regulation, has seen the number of firms carrying an audit certificate slashed in the past five years.

Figures from the Professional Oversight Boards (POB) latest annual survey of the profession finds there are 7,843 registered audit firms in the UK and Ireland, 21.2% lower than in 2004 (9,950). The rate of decline has slowed, falling 3.2% in 2009 compared to 4.7% in 2008.

The threshold for auditing companies leaped in 2004 from companies with 1m annual turnover to 5.6m, introduced by then DTI secretary Patricia Hewitt to ease the regulatory burden on SMEs. The current figure stands at 6.5m. During that period auditors have come under much greater scrutiny from their institutes over continuing professional development and enhanced supervision.

Some firms have found that there is no longer a good business case for retaining their audit registration, merged with other firms or passed on this work to larger firms where there are greater economies of scale in relation to matters such as quality assurance and CPD, the report stated.

Small firm representatives have spent years urging them to drop audit services to provide clients with a greater, and more lucrative, range of business serv- ices. According to the numbers, some have listened.

Once a practice has only a handful of audit clients remaining, the economics of maintaining audit registration fees come into question, Society of Professional Accountants chairman Peter Mitchell wrote for Accountancy Age in 2008.

As recently as May, POB called on the institutes to increase their monitoring levels on non-regulated services such as tax or accounts production.

In response, advisers called on the audit threshold to be raised even more dramatically. Harris Lipman senior partner Barry Lewis wants the turnover threshold hiked to 25m.

The number of audit sole practitioners decreased 8% between 2008 and 2009, to 4,285.

Despite declining sole practitioner numbers, and red tape concerns, students are still attracted to the profession.

Across the six main institutes there were 421,073 registered students in 2009, an increase on the previous year's figure of 395,355. Not all the institutes have fared well. ICAS has seen students numbers fall to 2,426, from 2,672 in 2008.


A fall in audit registrations might have slowed, but not significantly. With pressure to push the threshold higher, the question remains whether sole practitioners and smaller firms can survive either the compliance burden and cost of undertaking audits, or conversely keep clients on board if the threshold climbs again. Those sticking with audit must now understand that a broader range of assurance and handholding is the best way to provide clients with value and maximise revenues, rather than rely on just the annual sign-off.

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