Mid-tier ushered through audit door

While the Financial Reporting Council continues to procrastinate over audit
competition and choice, some key stakeholders have already taken it on
themselves to get the ball rolling.

The review into how to tackle the dominance of the Big Four while avoiding
the collapse of another of the large firms may still be in the early stages, but
there are already signs of significant appetite among some mid-tier firms to
challenge their larger rivals. Now, one of the key stakeholder groups and users
of financial accounts, the investors, has also signalled a willingness to

The Association of British Insurers last week stated that it wants companies
to keep an open mind and consider all choices when appointing auditors,
including those outside the Big Four.

‘Investors are content for companies to choose an auditor from outside the
Big Four, if it suits their circumstances,’ says Peter Montagnon, director of
investment affairs at the ABI. ‘By making this clear we are helping to promote
greater choice.’

Montagnon adds that investor contribution is only one of many measures that
are needed if the number of competitors at the high end is to expand, but the
noise from the ABI is significant nonetheless.

During the public debate on the Oxera report it was mooted that companies
were generally unwilling to look outside the Big Four because investors and
shareholders wanted the assurance of a Big Four audit.

That view has now been undermined by the ABI’s statement, as its members
control nearly 20% of all listed shares. Additional support from other major
investment houses could kick open a door for the mid-tier that had previously
been held firmly shut.

Welcoming the announcement, Jeremy Newman, managing partner at mid-tier firm
BDO Stoy Hayward, admits that while there are some companies that will require a
Big Four audit due to their scale and certain specialist resources ‘there may
only be approximately 150 of such companies in the UK’.

If the rest are now considered fair game, and the companies are also more
willing to shop around, the Big Four could see a huge chunk of their market
under considerable threat.

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