Intervention into the Big Four’s dominance of the audit market looks almost certain following the publication of a report confirming that normal market forces are not working in the profession.

Nearly nine months after research into the competition and choice in audit was first commissioned, consultancy group Oxera yesterday confirmed suspicions that competition is not working effectively.

The 167-page report concluded that a greater number of audit competitors is needed for the FTSE 350 to ensure competition operated properly, but market conditions and perceptions made it virtually impossible for the mid-tier to enter the market.

It also said choice was limited, with some companies having no choice over which auditor to pick in the short term and that the reduction of a Big Four to a Big Three would exacerbate competition problems, requiring rules on auditor independence to be changed.

One senior fund manager told Accountancy Age: ‘We now need to look at whether structural intervention can play its part in resolving the issues raised.’

Iain Richards, head of governance at Morley Fund Management, said the report’s conclusions came as ‘no surprise’, but it was important that policymakers ‘avoid falling into the trap of focusing on protecting the Big Four at the expense of essential and effective, longer-term reform’.

PricewaterhouseCoopers, which could stand to lose the most from any major changes to the market, read the report rather differently.

‘I’m not convinced that there is a substantial problem,’ said Peter Wyman, head of professional affairs at the firm. ‘My initial impression is that we are operating in a fiercely competitive market.’ He added that the report showed a ‘substantial element of market choice’.

Trade and industry minister Gerry Sutcliffe, who was responsible for commissioning the joint report with the Financial Reporting Council, urged those in the profession and other stakeholders ‘to continue to work with the FRC in taking this important work forward’.

The regulator has arranged a stakeholder meeting for 26 April where interested parties can air their views on the report.

For more on the competition report check out...

Competition report: the Big Three scenario
A Big three would undermine investor confidence and the effectiveness of the audit market

Competition report: audit costs on the rise
Big Four dominance has made audits more expensive over the last decade

Competition report: welcomed by mid-tier bosses
Current ‘domination’ a risk to the market

Competition report: 'What everyone expected' – AQF
Head of lobby group on audit quality accepts report's findings

Competition report: Liability reform needed
ICAS argues proportionate liability 'essential' to avoid catastrophe