Is concentration in the audit market back in the news?

Recent research by The London School of Economics ­ and, moreover, BDO Stoy Hayward’s interpretation of that research ­ has brought the subject of concentration in the audit market back into the news.

While the LSE research seeks to avoid the pitfalls of the 2006 Oxera report, some of its under-lying assumptions still raise significant questions.

For example, the research uses a model that implies regulation and complexity affect all companies in the same way and at the same time.

This just isn’t reality. Changes in regulation and complexity (and in systems and processes) have a variable and often enormous effect on businesses and audit fees.

The report may or may not show a correlation between market con-centration and audit fees.

It is BDO’s attempts to present the research as showing causality that raises eyebrows.

Misusing LSE’s analysis to make such a point, and to try to tilt the playing field in favour of new entrants, is not helpful.

My experience over more than 25 years as an auditor is that the market is competitive ­ indeed, highly competitive.

Clients and prospective clients I see are not beholden to my firm, or any other.

The move from five very large firms to four did not have a significant effect on the UK market.

The important question is whether quality is being maintained and improved. Just maybe, the market consistently chooses a ‘big four’ provider, because it recognises their strength in delivering the quality of services they demand.

Quality underpins the ability of firms such as PwC to compete across the entire audit market and is a result of sustained long-term investment in people, networks, infrastructure and methodologies, across geographies, sectors and market segments.

The opportunity to invest and be competitive is open to all ­ and always has been. It’s up to those wishing to participate to make the necessary investment on a continuing basis to enable them to up their game.

The ultimate goal must be to continue to provide companies with high-quality audit work ­ not to simply increase the numbers in the ‘big’ firm pool for its own sake.

Richard Sexton is head of assurance at PricewaterhouseCoopers