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 STATUTORY AUDIT SERVICES MARKET INVESTIGATIONS

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PostSubject: STATUTORY AUDIT SERVICES MARKET INVESTIGATIONS   Wed Oct 11, 2017 5:48 pm

STATUTORY AUDIT SERVICES MARKET INVESTIGATION

The suppliers of statutory audit services to large companies

Introduction

1. This paper provides an overview of the suppliers of statutory audit services in the UK and the history of their consolidation (paragraphs 2 to 21). It then provides a brief portrait of each of nine large firms which have provided statutory audit services to large listed companies in the UK in turn: Baker Tilly, BDO, Deloitte, Ernst and Young (EY), Grant Thornton, KPMG, Mazars, PKF, and PwC.







Overview and the history of consolidation








The structure of the UK firms and their international networks










2. The four largest UK firms (Deloitte, EY, KPMG and PwC) are members of international networks of broadly similar scale. Each operating in approximately 150 territories and employing between 145,000 and 182,000 partners and staff in total. The members firms of the networks share a name, brand, a commitment to audit quality standards and common methodologies but member firms remain legally separate, and are typically independently owned and controlled. Member firms are brought together by common membership of a central network body or entity. The EY network differs through the greater level of ‘global integration’ and this is discussed below.





3. Most of the other large firms (Baker Tilly, BDO, Grant Thornton and PKF) are also members of networks (Mazars by contrast has adopted a global ‘integrated partnership’).1 The legal structure of these networks is broadly similar to the four largest networks and are differentiated primarily by the combined size of their member firms. Geographic coverage (measured by the number of countries in which



1 Mazars is included in the comparisons of networks.







the network is present) is less, although this difference tends to be with respect to smaller, developing economies. These networks have member firms in between 69 and 135 countries, compared with the 150 countries of the four largest networks.2The number of staff and partners employed globally by these networks ranges from 13,000 to 49,000 and their combined global revenues range between £815 million and £3,573 million. The individual networks and their UK firms are compared in Table 1 below.





4. For all of the firms covered by this paper, there is a central coordinating entity (herein ‘network body’).







Seven of the nine network bodies are incorporated in the UK as companies limited by guarantee.4 A key difference between a UK company limited by guarantee and companies limited by shares is the absence of share capital.5 Control of a UK company limited by guarantee is exercised by ‘members’ as it is a membership rather than ownership-based entity.6A company limited by guarantee is able to distribute its profits to its members, but it may not give a person a right to participate in the divisible profits of the company otherwise than as a member.





5. Eight of the UK member firms discussed here are incorporated as Limited Liability Partnerships (LLPs). The exception, Baker Tilly, operates through a group of companies limited by shares and LLPs, with the audit function contained within a specialist LLP. An LLP is a body corporate and is much like a company limited by



Mazars integrated partnership is arranged around a central network entity, Mazars SCRL. In each country there will be a separate legal entity, which is owned by its partners. These local firms have signed a cooperation agreement with Mazars SRCL. The members (partners) of a firm will also be members of Mazar SRCL. The majority of Mazars UK partners are partners of Mazars SRCL, and these partners share profits with other partners globally; Mazars member firms are also members of the Praxity alliance of independent firms, which provides additional coverage.



3 In this document, ‘the network body’ refers to the central entity that coordinates and provides services to firms.



4 KPMG International is a Swiss Cooperative, which is the equivalent of a Company Limited by Guarantee and Mazars SCRL, is similarly the Belgian equivalent.



5 In a UK company limited by shares, should the company be wound up with outstanding liabilities, the shareholders are not liable to any additional amounts, but would share in a distribution of any assets. In a UK company limited by guarantee, the members must pay up to a guaranteed amount (which is usually of nominal value).



6 In a company limited by shares, should the company be wound up with outstanding liabilities, the shareholders are not liable to contribute any additional amounts, but would share in a distribution of any assets. In a company limited by guarantee, the members must pay up to a guaranteed amount (which is usually of nominal value).









Under UK law, a member of an LLP can be an individual, a company or another LLP.



Individual national firms become members of the network by being members of the network body (or by contract). The relationship between the member firms and the network will be determined by a network body legal agreement between each member and the network body, as well as the constitutional documents of the network body. Pursuant to these documents member firms agree to be bound by policies set by the network body.



7. Some networks have different types of member firm. The terminology used to describe the different types of membership differs in each firm. In all of the nine networks discussed in this paper, the UK firm is a full member of the network, and is subject to all of the network’s policies, branding, methodology and quality assurance requirements. Other firms, particularly in developing markets may be ‘affiliate firms’ which carry out audit work on behalf of the member firms, but which may not necessarily be subject to the full policies of the network.



8. There is no pooling of profits at an international level with the exception of Mazars, and to a small extent KPMG UK (see paragraph 116). The amount paid to the network body by each member firm to fund the network body’s running costs is based on the level of revenue that a member firm generates.



7







Under UK law, a member of an LLP can be an individual, a company or another LLP.



Individual national firms become members of the network by being members of the network body (or by contract). The relationship between the member firms and the network will be determined by a network body legal agreement between each member and the network body, as well as the constitutional documents of the network body. Pursuant to these documents member firms agree to be bound by policies set by the network body.



7. Some networks have different types of member firm. The terminology used to describe the different types of membership differs in each firm. In all of the nine networks discussed in this paper, the UK firm is a full member of the network, and is subject to all of the network’s policies, branding, methodology and quality assurance requirements. Other firms, particularly in developing markets may be ‘affiliate firms’ which carry out audit work on behalf of the member firms, but which may not necessarily be subject to the full policies of the network.



8. There is no pooling of profits at an international level with the exception of Mazars, and to a small extent KPMG UK (see paragraph 116). The amount paid to the network body by each member firm to fund the network body’s running costs is based on the level of revenue that a member firm generates.
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PostSubject: Re: STATUTORY AUDIT SERVICES MARKET INVESTIGATIONS   Wed Oct 11, 2017 5:49 pm


UK Firms and networks Baker Tilly

BDO

Deloitte

EY

Grant Thornton

KPMG

Mazars

PKF

PwC

Revenue

Global

UK

UK significance

£1,900m

£179m

9.4%

£3,573m

£280m

7.8%

£18,270m

£2,098m

11.5%

£14,520m

£1,465m

10.1%

£2,331m

£377m

16.1%

£14,400m

£1,707m

11.94%

£815m

£109m

13.4%

£1,521m

£108m

9.4%

£18,520m

£2,461m

13.3%

Number of staff

Global

UK

25,000

1,844

48,767

2,615

181,566

12,761

152,000

9,500

30,000

3,692

145,000

11,230

13,000

1,209

15,000

1,500

161,000

17,079

International presence

Countries

120

135

153

145

100

152

68(+14)

125

154
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