The new head of the UK’s accounting watchdog said there was little evidence
to justify a fifth big player in the concentrated audit market, and will instead
plough his efforts into planning in case of a Big Four collapse.
Stephen Haddrill, the new Financial Reporting Council chief executive, in his
first interview since taking the post, said there was little chance a global
challenge to the Big Four – PricewaterhouseCoopers, Ernst & Young, Deloitte
and KPMG – would emerge in the near future.
“I don’t think it is achievable in the near term and the priority for us has
to be that we are prepared for the worst and that is where I will put my focus,”
The worst, according to Haddrill, is the global collapse of a Big Four
auditor, which has the potential to throw markets into chaos.
He believes the FRC should concentrate on maintaining high standards among
the larger firms while simultaneously provisioning for a collapse.
“I would rather make sure that we can have complete trust in the audit firms,
that they understand global business and they have a basis for overseeing the
audit of global companies… That’s more important to me than finding firm number
five,” he said.
“We have looked at the levels of competition, we have looked at the levels of
pricing and, I suppose, if you look at the levels of pricing as the first
question, we haven’t got an enormous amount of evidence that says we need firm
The move signals a change in direction from Haddrill’s predecessor Paul
Boyle, who used his time looking to promote greater audit choice.
Mid-tier firms BDO and Grant Thornton have long argued that restrictive banking
covenants and institutional recalcitrance have blocked firms from breaking into
the top tier.
Scott Barnes, CEO at Grant Thornton, said he would be “very interested” to
hear from Haddrill on practical steps the FRC can take to bring in greater
competition and choice.
“You simply cannot guarantee a Big Four firm won’t fail, the only real
solution is to take steps to increase competition and choice based on audit
quality now, rather than wait for it to be forced on the profession by another
crisis,” he said.
Simon Michaels, managing partner at BDO, said the FRC has the balance right
at the moment “and promoting competition in the profession is a good thing”.
In a wide-ranging interview Haddrill also criticised continuing efforts to
converge US and international accounting rules. He said the focus should be on
creating high-quality international standards, rather than convergence.
“We have got to work together, but we have to work together around the goal
of producing good quality standards, not just about translating American
standards into an international shape.”
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