No Big Four split, says FRC

No Big Four split, says FRC

Watchdog rules out drastic action to increase audit competition

Members of the Big Four will not be broken up in order to increase
competition in the audit market, accounting’s watchdog has confirmed.

Responding to a direct question from a concerned investor at last week’s
stakeholder meeting on audit competition and choice, the Financial Reporting
Council confirmed that neither it nor the government had the power to tear apart
a Big Four firm in order to create more competitors.

The meeting provided little in terms of firm plans for ways to increase the
amount of audit choice available to large companies with even the larger
mid-tier firms that would benefit the most reluctant to see intervention.

Steve Maslin, head of assurance at number five firm Grant Thornton argued
that competition could be improved by providing better information to the market
on the capabilities and hunger of those firms outside the Big Four willing to
compete.

Representatives from Mazars even argued that the report showing exceptionally
high barriers to entry for mid-tier firms differed significantly for its own
entry model.

Paul George, director at the FRC’s oversight board, suggested that the
exercise itself of commissioning the report had created greater awareness of
appetite outside the Big Four and had created a platform for investors to
comment on the matter.

Some investors now fear that much of the work going forward will instead
focus on preventing further reduction in competition, potentially offering
greater protection to the current top tier of firms and cementing their position
of power.

FRC chief executive Paul Boyle said that although something needed to be done
to help stop the further reduction in competition, ‘this is not the FRC saying
that a Big Four firm is too big to fail’.

Some accountants have argued that competition and exposure to liability are
intrinsically linked and the study falls down by failing to look at the two
issues together, but Boyle argued that while changes to the liability regime
included in the company law reform bill would help the situation somewhat ‘it
does not eradicate the problems we are talking about.’

The FRC is to publish a paper outlining its initial views on the report later
this month.

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