Competition concerns were all too predictable

Has the merger that created PricewaterhouseCoopers created a regulatory and competitive bind that blights the current audit market?

As the firm marks the 10th anniversary, next month, of what was known as the ‘mega-merger’, the one that forever transformed the accountancy landscape, it’s only natural to ask whether it was a good idea at the time. The suggestion is that it wasn’t. Some might argue, as they have done of late over the big banks, that they are too big to fail.

What does that mean? It means that the markets are so dependent on a small group of enormous firms that the risk of failure creates a following risk of a huge regulatory crisis.

But it is not clear that size is the issue. It is perhaps better to see it another way. The Big Four are too few to fail. By that we mean that more global-sized firms are needed to spread the regulatory risk.

PwC has undoubtedly been a hugely successful business since the merger. It has global dominance, it has instant and authoritative brand recognition in the markets and it has become associated with the biggest corporate names. It works. But there are not enough firms like PwC out there.

Moves are under way to improve the chances of other firms competing more effectively with PwC but the signs were there 10 years ago that regulators should have seen the risk. That’s because in the same year forces joined to establish PwC, KPMG and Ernst & Young also tried to merge. If that had proved successful we would have had a Big Four then and we would not have had to wait for Enron to remove Andersen from the equation.

Warnings over auditor competitiveness should have been heeded more closely at the time. If they had been, we might be a very different position today.