As PricewaterhouseCoopers prepares to mark ten years since its creation, the UK’s chief accounting regulator has thrown doubt on the success of the merger that made it the world’s biggest firm by saying it has made the regulatory environment more ‘risky’ and that it might not have been in the ‘public interest’.

Paul Boyle, chief executive of the Financial Reporting Council, said: ‘With hindsight, it’s unfortunate that the merger was allowed to go ahead, because it has left us in a more risky position than we otherwise would have been.’

The regulator has been tasked with resolving a lack of choice in the audit market. It is an ongoing project that is seeking ways of preventing the collapse of one of the large firms, while encouraging companies to use firms in the next tier.

The international merger created a giant firm with 135,000 employees and revenues of more than £8bn at the time.

In an interview with Accountancy Age, Boyle suggested that if Price Waterhouse and Coopers & Lybrand still existed, they would be about the size of Ernst & Young, and not ‘too small’ to handle global clients.

'I’m not saying it would have been possible for the regulatory authorities to make a different decision. But it is an example of how something that is in the commercial interests of two parties to a transaction might not be in the public interest,’ said Boyle.

The merger was approved after strong representations before the US Department of Justice and the European Commission’s competition authority.

PwC’s head of professional affairs, Peter Wyman, said the firms’ analysis was that the pre-merger firms were individually unable to remain in the top league.

‘There was a severe risk that the profession would polarise into the Big Four and two, and we would have been next two. Our analysis was not something done on the back of a cigarette packet,’ said Wyman.

He also pointed out that the risk following Andersen’s collapse was that there would only have been three top firms, followed by two and a further two on a third tier.

‘I would suggest that the merger was even more important that it was thought to have been back in 1998,’ he said.

Further reading:

PWC: is it too big for its boots?