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Firms vie over FTSE 350 audit market definition

BIG FOUR AND MID-TIER AUDITORS are at odds over how the market for FTSE 350 audits should be defined

In a series of responses to the Competition Commission’s working paper on defining the market, the likes of BDO and KPMG have clashed over the terms of reference.

The paper, which forms part of the commission’s investigation into market concentration among large-listed audit clients, suggested it is unable to define separate markets within the FTSE 350.

KPMG agreed with the commission’s position, arguing that it is impossible “to draw precise dividing lines between different companies operating, for example, in different sectors of the economy”.

“Instead, companies (both within and without the FTSE 350) vary continuously, according to a number of different characteristics,” KPMG said.

However, BDO found the commission’s “stated lack of evidence somewhat surprising” and cited “Ernst & Young’s perceived weakness in banking/financial services”.

BDO also warned against focusing on a too narrow market definition, arguing competition issues that apply to companies in the bottom end of the FTSE 350 are unlikely to be very different from companies just outside the market.

“The nature and scope of the audit of the largest FTSE 100 companies is not necessarily representative of, nor reflected in, the audit requirements of smaller companies, particularly those companies that are at the lower end of the FTSE 350,” BDO said.

Firms also disagreed over the CC’s definition of the “characteristics” of FTSE 350 companies.

“Most FTSE 350 companies do not operate in dozens of jurisdictions and do not have highly complex structures and/or business models. BDO reiterates that it acts for a number of private companies that are of a much bigger scale than some FTSE 350 companies,” the firm said.

BDO went on to contend that it is only about 35 of the largest FTSE 100 companies that it would be unable to audit due to their size and complexity.

“The difference between the audit requirements and characteristics of these 35 or so companies and the rest of the FTSE 350 are much greater than the differences between the majority of the FTSE 350 and the next 100 or so largest companies,” BDO said.

In its response, PwC recognised the nature and scope of audit work varies considerably within the FTSE 350 and that some companies outside the FTSE 350 may have higher turnover or more complex audits than smaller companies within the FTSE 350, but added that, “the general premise that FTSE 350 audits are the largest and most complex UK company audits – and can be distinguished on that basis – is both supported by the CC’s analysis and consistent with our experience”.


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