Professional service firm Grant Thornton has lost its status as a ‘top-tier’ auditor, according to the regulatory findings of the Financial Reporting Council. The watchdog’s filing does not reflect a fall in the standards of the company’s work, but instead that its share of large accounting clients has decreased.
In the UK, the top table of the accounting market has become an increasingly narrow selection of firms. Until recently, just seven firms were classified as ‘tier one’ auditing firms. These were the Big Four of Deloitte, PwC, EY and KPMG, as well as mid-sized competitors BDO, Mazars and Grant Thornton.
Raising the portion of the market held by challenger firms had been a major part of the UK government’s 2019 electoral promises to improve competition in the market. The industry had come under increasing public pressure to break up a perceived ‘monopoly’ presided over by the Big Four – something the opposition at the time had pledged to do – in the wake of a number of huge accounting scandals, which led to the collapse of several large employers across the UK.
The incumbent administration preferred not to directly intervene in the market, but in light of the latest developments, may once again find itself under pressure to do so. The number of top tier auditors has now declined to six, by the reckoning of the Financial Reporting Council (FRC), which acts the audit industry’s watchdog.
Grant Thornton remains the sixth-largest advisory and accounting firm, but was demoted to tier two status by the FRC in its regulatory filings in July – which were reported on by The Financial Times at the end of 2023. The news came after Grant Thornton saw its number of public interest entity (PIE) audits fall well below that of its closest rivals. While Grant Thornton carried out 20 PIE audits in 2020, BDO carried out 217 in the same period.
Since 2016, Grant Thornton has removed more than 70% of PIE clients from its books, including prominent listed companies and insurers. This was in part in response to the infamous collapse of café chain Patisserie Valerie – a client of Grant Thornton’s, which went into administration following the discovery of a multi-million accounting ‘black hole’ – which eventually left the firm facing huge legal claims.
Grant Thornton is not the only major auditing firm which is alleged to have carried out a comprehensive de-risking of its accounting portfolio in recent years. BDO and Mazarswere warned by the FRC in mid-2023 that they risked breaching industry code, if they looked to ditch problematic audit clients. However, many of those same clients were ones which the Big Four had allegedly distanced themselves from in turn – something which had reportedly helped them boost their own audit quality in the process.
While the removal of Grant Thornton from top tier status may concern market commentators, however, it does not seem to have been seen as an issue by the firm itself. The FRC’s executive director for supervision, told The Financial Times that the firm’s demotion did not reflect audit quality but rather a “smaller share of the PIE market”. Echoing this position, Grant Thornton remains bullish about its prospects in the coming months.
A spokesperson told The Financial Times, “We are extremely proud of our quality results over the last three years and respect the regulator’s decision to include our firm in its tier two category of supervision. The decision by the FRC has no impact on our audit strategy and our continual investment in audit quality.”
To that end, the move may benefit Grant Thornton to a certain extent. While it may be perceived as a certain loss of prestige in some quarters, a tier one firm is subject to inspections of PIE audits every year – but a tier two firm only faces FRC examinations once in every three years. While Grant Thornton’s most recent audit quality report already noted improvements, this could give the firm some extra breathing room to rebuild its reputation, away from the public limelight.
