THE PREPONDERANCE of Big Four alumni working as finance directors and audit committee chairmen in the FTSE 350 could be stifling competition in the audit market.
In papers published by the Competition Commission ahead of the preliminary findings of its investigation into the Big Four's dominance of the audit market, the regulator said competition could be restricted by the "backgrounds of those involved in the appointment of auditors".
According to the commission survey, 64% of all respondents (both FDs and audit committee chairmen) had previously worked for a Big Four firm. The watchdog also found that the majority of FTSE 350 companies would consider only Big Four firms, with 84% if FTSE 100 companies taking such an approach.
"We consider that this preference for Big Four firms might also reflect the backgrounds of those involved in the appointment of auditors," the commission said. It is possible that this familiarity will make them more favourably disposed to the appointment of a Big Four rather than a non-Big Four firm (if their experience was positive) – on the other hand, it could make them less aware of the quality and experience of non-Big Four firms."
The most frequently mentioned reason for choosing a Big Four auditor, by both FDs and audit commiteee chairmen, was the size and geographic coverage of the Big Four audit firms, sector knowledge and experience, the commission said.
This is true indeed, and has not happened by chance. Over decades Big Four have been intentionally outplacing their staff to ensure connection with clients via strong alumni network. This is a smart business approach from a firm's perspective, however it does create that bias mid-tier firms complain about - giving preference to who you know without even considering alternative options.
Posted by: Spencer, 08 Oct 2012 | 14:15
I expect the next investigations by the Competition Commission to be into the defacatory habits of bears in forested areas and into the rumours the the Pope may have Catholic leanings!!
The influence of the "old boy network" is still very much alive as a factor in who gets appointed as auditors.
Posted by: Simon GNR, 18 Oct 2012 | 13:41
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