Big Four audit tenders benefit from ‘virtuous circle’

Big Four audit tenders benefit from ‘virtuous circle’

Virtuous circle that increases Big Four chances of winning FTSE 350 audits operates in reverse for mid-tier

A “VIRTUOUS CIRCLE” that exists for the Big Four is hindering the mid-tier’s ability to win FTSE 350 audits, according to the Competition Commission.

The commission, which is investigating competition issues in the market for large-listed audits, found that the Big Four’s ability to point to an extensive international network and audit engagement partners with relevant experience increases their chances of successfully tendering business.

In a working paper outlining an overview of its findings, the commission found that the “circle operates in reverse” for mid-tier firms, and that there is a “risk of prejudice” against non-Big-Four firms from companies which mid-tier firms have the capability to audit.

“Some of [the mid-tier] equally have extensive international networks (albeit with smaller member firms), but cannot point to the same level of experience of auditing large companies,” it said.

FTSE 350 decision-makers tend not to be concerned about price when determining audit provision, as such fees tend not to represent a large proportion of their overall budgets. The commission also found evidence of a perception that price and quality are linked – therefore undermining one route for mid-tier firms to win work – namely low cost provision.

“Equally, management aversion to shared audits means that mid-tier firms cannot demonstrate their capability by initially auditing say, one subsidiary or territory,” the commission said.

Having heard views from companies, investors and non-Big-Four firms that there is insufficient choice in the market, the commission will interview representatives from Deloitte, Ernst & Young, PwC and KPMG over their dominance of the market.

While the Big Four will be called upon to defend their position, the commission has said that it has seen no evidence of a strong link between market concentration and price and quality.

Share

Subscribe to get your daily business insights

Resources & Whitepapers

Why Professional Services Firms Should Ditch Folders and Embrace Metadata

Professional Services Why Professional Services Firms Should Ditch Folders and Embrace Metadata

3y

Why Professional Services Firms Should Ditch Folde...

In the past decade, the professional services industry has transformed significantly. Digital disruptions, increased competition, and changing market ...

View resource
2 Vital keys to Remaining Competitive for Professional Services Firms

2 Vital keys to Remaining Competitive for Professional Services Firms

3y

2 Vital keys to Remaining Competitive for Professi...

In recent months, professional services firms are facing more pressure than ever to deliver value to clients. Often, clients look at the firms own inf...

View resource
Turn Accounts Payable into a value-engine

Accounting Firms Turn Accounts Payable into a value-engine

3y

Turn Accounts Payable into a value-engine

In a world of instant results and automated workloads, the potential for AP to drive insights and transform results is enormous. But, if you’re still ...

View resource
Digital Links: A guide to MTD in 2021

Making Tax Digital Digital Links: A guide to MTD in 2021

3y

Digital Links: A guide to MTD in 2021

The first phase of Making Tax Digital (MTD) saw the requirement for the digital submission of the VAT Return using compliant software. That’s now behi...

View resource