PracticeAuditAudit competition inquiry accelerates

Audit competition inquiry accelerates

The Big Four and Grant Thornton have submitted strong initial statements to the Competition Commission's audit inquiry

THE COMPETITION COMMISSION’S inquiry into audit has kicked off with strident statements from some of the main protagonists.

Contributions from the Big Four and Grant Thornton are up on the watchdog’s website, and BDO’s James Roberts said the firm has also made a submission.

A commission spokeswoman confirmed there are several more waiting to be published.

Ernst & Young were muted in their statement, insisting on the fierceness of audit competition and their support for “measures that safeguard the existing sources of supply and encourage the emergence of other audit providers”.

KPMG and PwC were more vociferous, launching an attack on the Office of Fair Trading’s initial investigation that led to referral to the more powerful Competition Commission.

KPMG called the watchdog’s analysis “overly simplistic and erroneous”, saying a “robust” examination will “need to move beyond the OFT’s position”.

PwC also came out guns blazing, saying of previous reviews of audit competition: “Regrettably, none of these have included a proper assessment and they appear to be based on a misconception that competition in the provision of audit services is less than effective.”

Deloitte was slightly more conciliatory, underlining the high expectations of clients and insisting the commission closely questions investors and audit committees in conducting its investigation.

Other Big Four firms agreed it is essential to extensively gather views from audit service users before making any conclusions, implying their believe FTSE leaders will support their stance.

Grant Thornton’s submission underlined “significant concentration” and “high barriers to entry and expansion in the market”.

The fifth-largest UK firm said pre-conceptions around reputation and risk combined with low levels of auditor switching among the largest listed companies make it “extremely difficult … to destabilise the position of the four largest audit firms and grow market share”.

All four top firms underlined the investment they have made to grow their businesses, saying this, combined with audit clients’ savvy knowledge of the market, is behind their dominant position.

The Competition Commission will issue a statement on its inquiry and an administration timetable in early December, a spokeswoman revealed. These will “outline the milestones” of the study and areas the watchdog will be examining.

A request for evidence submissions by interested parties will follow and hearings will then take place.

BDO’s James Roberts said the sixth-largest UK firm has offered to meet with the commission, but a date has not yet been arranged.

“I suspect they will contact us after they have spoken to the Big Four, maybe after Christmas,” he mused, adding: “It’s their call.”

The Competition Commission’s inquiry takes place alongside audit reform proposals coming out of Brussels. Some stakeholders have accused EU reformers of a lack of evidential basis for their radical plans, saying they welcome a more methodical inquiry by the UK watchdog.

Big Four insiders have suggested the firms’ work on the inquiry is significant, with dozens of staff meeting several times a fortnight to satisfy the watchdog’s demands for sensitive information.

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