Big Four earn bulk of audit fee from NSE firms

And, have a bigger share of non-audit earnings; Deloitte leads

The ‘Big Four’ accounting firms  and their associates handled a high of 378 audit assignments or 26 per cent of the 1,451 companies listed on the NSE, during 2014-15.

An analysis based on annual reports of companies for that financial year showed these large groups — Deloitte, EY, Price Waterhouse and KPMG — accounted for 29 per cent of the total fees earned from these listed companies.  And, that these four also had a significant portion of their earnings from fees for services other than audit.

Of the Rs 273 crore in non-audit fee earned by all accounting entities, the four accounted for a little more than half. In terms of number of companies, Deloitte led with 149, followed by EY Group (108), Price Waterhouse Group (65) and KPMG Group (58).

Deloitte also led the fees-earned list, with Rs 225 crore for FY15.The four groups earned Rs 589 crore in total fees, of the Rs 2,000 crore paid out by these companies, according to data provided by Prime Database, a Delhi-based research entity. This sum comes from data based on 1,421 companies for which total fee data is available. This was in comparison to the Rs 1,875 crore  paid in 2013-14, a rise of seven per cent.

The average total fee was Rs 1.4 crore per company. Deloitte Group led with Rs 303.2 crore, followed by EY Group at Rs 121.2 crore, KPMG at Rs 99.4 crore and PWC at Rs 65.6 crore. The overall fee included payment for audit, for other services such as tax and cost audits, consultancy and reimbursements.

The firms paid Rs 1727 crore in audit fee. Of this, the big four earned a fourth or Rs 441.6 crore. Deloitte again led with Rs 225 crore. Of the Rs 273 crore, the difference between total fee paid and the audit fee paid that can be construed as fee for non-audit services such as consultancy, the four accounted for Rs 148 crore or 54.2 per cent.

Their dominance was even stronger in the Nifty-500 subset, wherein  they handled 229 of the 500 audits or 46 per cent of the total.  Fees earned for services other than audit are seen as a source of conflict of interest, as is long tenures. Pavan K Vijay, managing director, Corporate Professionals, said: “The company law provisions now expressly bar auditors from taking up non-audit work such as valuation, consulting, etc. The non-audit fee here could be for such services provided to companies in which they have no audit role.”

Recognising these issues, the Companies Act,  2013, made provisions for rotation of auditors for all listed companies. In accordance with the new law, listed companies and those in the prescribed class cannot appoint or re-appoint an auditor for (a) More than two terms of five consecutive years, if the auditor is a company (b) More than one term of five consecutive years if the auditor is an individual.

However, these provisions are likely to have some impact only after the completion of five years.

Pranav Haldea, managing director, Prime Database, said, “As far as large companies are concerned, they prefer the bigger firms because this gives better comfort to institutional investors.” On an overall basis, as many as 791 audit entities audited the 1,450 NSE-listed companies  in 2014-15. This implies that, on an average, an audit firm audited 1.83 companies.  However, the top 10 audit firms accounted for this job at as many as 521 companies or 36 per cent of the total.

Auditor changes, including addition or deletion of one or more auditors for companies with joint audits, were seen in as many as 171 companies.