DTI awaits scrutiny of Big Four audit competition

A report examining the issue of competition among Big Four firms is expected
to land on desks at the Department of Trade and Industry imminently, with
investors hoping the findings will provide the catalyst for major changes in the
audit market.

The study was jointly commissioned by the government department and the
Financial Reporting Council as part of a wider review of the audit market and
the provision of audit services.

Consulting group Oxera has been working on the project since the second half
of last year and its findings will arrive at both bodies any day now. The report
will then be pored over before being released to the wider public in April.

Investor groups see the study as a lynchpin in the drive to improve the
quality of the audit service provided to shareholders and hope the findings will
provoke strong debate and stimulate movement on the matter.

One investor said he was hopeful that the findings would uncover something of
importance, ‘particularly since the DTI seems to have taken ownership of the
study again’. He argued that the government had the opportunity to distance
itself from the research, by placing the onus of responsibility on the FRC, if
the research was to prove fruitless.

Another representative of a major fund manager said that, while he did not
expect the report’s conclusions to rock the foundations of audit, some
interesting and possibly controversial findings could be unearthed.

The report will touch upon how the audit market works at the moment, whether
there is enough choice for companies at present, what might improve the
efficiency of the market and what the potential implications would be if the Big
Four was reduced to a Big Three.

Oxera was commissioned to carry out the work following requests for detailed
research into competition in the audit market by the Audit Quality Forum. The
forum, which comprises senior representatives from the profession, investment,
banking, regulation and government has already created its own working group and
is likely to draw on the findings of the report when it provides its own
recommendations to government.

The report could provide a boon to a growing number of mid-tier firms that
are trying to compete with the Big Four for at least some of its audit work.

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