After years of concern about excessive concentration of major audits among the Big Four firms, the balance is shifting. Challenger firms are now auditing 40% of UK public interest entities (PIEs), up from 22% since 2020.
The data from the Financial Reporting Council (FRC) suggests that regulatory pressure and market intervention are beginning to loosen the grip of the largest firms.
Stephen Osborne, audit partner in Grant Thornton’s public interest audit team, says the market wants greater choice, high-quality audits and sector expertise, but also a more collaborative and accessible approach. ‘That has created real opportunities for firms to step in with a compelling alternative, and the market has been more receptive to this over the past few years,’ he says.
All switching FTSE 350 companies moved to another Big Four firm
Yet this progress comes at an awkward moment, with the government shelving long-awaited audit reforms, which had included plans to extend the existing PIE definition. For a sector still grappling with challenges of resilience, choice and audit quality, it is unclear if a chance for lasting change has been missed.
Stranglehold
The headline figures from the FRC’s December 2025 Audit market and competition developments update tell only part of the story.
While challenger firms have doubled their share of PIE engagements since the start of the decade, the Big Four continue to dominate the market by value, accounting for 98% of FTSE 350 audit fees and 91% of all PIE audit fees. In 2024, all of the 29 FTSE 350 companies that changed their auditor switched from one Big Four firm to another Big Four firm. The biggest, most complex and most lucrative audits remain firmly in Big Four hands.
There has been a shift, but it is at the smaller end of the market. Vipul Sheth at Advancetrack says the Big Four themselves have in part driven this, by ‘either not encouraging businesses of a certain size or exiting businesses of a certain size. A lot of the activity has been driven by the behaviour of the Big Four. That is where the scene is set, and then it is a question of how that is cascading down through the next couple of tiers of audit firm.’
Areas of growth
There have been some notable areas of growth, particularly among unlisted banks and insurers, and smaller structured entities and special purpose vehicles in the listed debt market, which have fewer external stakeholders to manage.
Challenger firms have invested heavily in building their PIE credentials
‘There is less resistance outside of the listed equity PIEs,’ says Greg Simpson, UK head of audit at Forvis Mazars. ‘There are 150 banks incorporated in the UK, and fewer than a quarter of them are listed, so there is a significant number to go with. These banks recognise that firms outside the Big Four can provide high-quality audits and greater choice.’
Challenger firms have invested heavily in building their PIE credentials. One firm that has made a strategic decision to invest in PIE audits is PKF Littlejohn. Hannes Verwey, a partner at the firm, says this has involved building specialist expertise in focus areas such as the natural resources and technology sectors, alongside the firm’s ‘key market’ of insurance companies.
Regulatory results
For more than a decade, policymakers and regulators have sought to prise open the market, spurred on by a series of high-profile corporate failures, alongside concerns about systemic risk and lack of choice.
‘The FRC deserves some credit here,’ Verwey says, ‘because it has made it clear that it wants to see more competition at the top end of the market and has taken some practical steps to support that ambition.’
‘Rotation has let mid-tier firms go for otherwise out-of-reach audits’
Interventions have ranged from operational separation of audit and consultancy businesses at the largest firms, to closer regulatory scrutiny, and measures to encourage companies to consider alternative providers.
Simpson points to the requirement to hold an audit tender at least every 10 years as a key driver of change. ‘Those rotations have allowed mid-tier firms to go for audits we otherwise wouldn’t have been invited to,’ he says.
Remaining challenges
Despite their growing footprint, challenger firms face significant barriers and still report inconsistent outcomes, underscoring the ongoing challenge of raising quality across the market.
‘Scaling for PIEs is about more than adding a few auditors’
Scaling remains the biggest hurdle at a time when regulatory expectations have intensified. The FRC’s inspection regime applies the same standards to all firms auditing PIEs, regardless of size.
‘Scaling capabilities for PIEs is about more than just adding a few auditors with the right level of experience and knowledge,’ Verwey says. ‘You also need to upgrade your technology, review your audit methodology and focus more on risk management. In other words, it becomes an ongoing project that needs to encompass the whole firm.’
To address some of the barriers, the FRC has launched its Scalebox initiative to support firms with smaller PIE portfolios – or those considering entering the market – by providing bespoke feedback on audit quality, and guidance on systems and controls. As part of the new Scalebox-SoQM workstream announced in September 2025, participating firms will benefit from reduced formal inspection, supervision and registration requirements during 2026 and 2027.
Missed opportunity
Increased choice and competition have been accompanied by an improvement in audit quality, driven by sustained investment in people, systems and quality management frameworks over the past few years. The FRC’s latest Annual Review of Audit Quality shows that, in the 2024/25 inspection cycle, around 86% of audits by the largest firms were graded as good or requiring only limited improvements; the figure is 85% for FTSE 350 audits.
‘Competition, choice and resilience in the audit market have been avoided’
Against this backdrop, the government’s decision to shelve key elements of its audit reform programme has unsettled many. Plans to create a new regulator, expand the definition of PIE and introduce additional measures to promote competition were intended to embed the changes set in motion after the collapse of Carillion. But several of these proposals have now been delayed or abandoned. The aim is to reduce regulatory burdens on business, but critics argue that momentum could be undermined just as reforms are beginning to bear fruit.
‘Competition, choice and resilience in the audit market have been completely and intentionally avoided,’ Simpson says. ‘Being able to say audit quality improved and the Big Four have done what they needed to do [by separating their audit and consultancy businesses] is not the answer – that is not going to drive change.’
