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The Building Society Audit Market

This report sets out recent findings which show that audit fees have risen significantly above inflationary levels for the building society sector, with a disproportionate burden being carried by smaller building societies, and that auditor competition and choice is lacking for the majority of building societies. 

Our research found that audit fees have risen in the building society sector in a manner which outpaces their asset size, profit margin and risk of failure. Headline figures include:

  • Audit fees for building societies rose by 13.7% on average last year (versus 8.6% increase in the Consumer Price Index (CPI) rate last year )

  • 2023 audit fees increased by an average of 25% for the smaller half of the building society sector 

  • Audit fees nearly tripled (up 177%) over the past five years as averaged across all building societies bar Nationwide (compared to 24.8% increase in CPI over the same length of time)

  • The cost of audit for the smallest eleven building societies in 2023 was equivalent to 9% of profits, compared to 0.35% for the largest 6 building societies

Action must be taken to address the building society audit market - we believe that the vast majority of building societies should be removed from the scope of PIE audits to best achieve this aim.

Background

It is no secret that there is a lack of competition and choice in the audit market. There have been independent reviews, Government consultations, and regulator projects which confirm this. This report sets out recent findings which show that audit fees have risen significantly above inflationary levels for the building society sector, with a disproportionate burden being carried by smaller building societies, and that auditor competition and choice is lacking for the majority of building societies. 

We believe that this is caused by a lack of proportionality in audit regulation and oversight, including the continued application of the Public Interest Entity (PIE) definition to all building societies. External audit for financial services must be robust and we do not want any weakening of audit quality.

However, the regulatory environment over the last five years has led to a sharp contraction in competition and choice, with appropriate audit firms bidding for building society audits just 54% of the time compared to 77% of the time previously, and 177% increase in fees for building societies.

Read the full report here