Intervention into the Big Four’s dominance of the audit market looks almost
certain following the publication of a report confirming that normal market
forces are not working in the profession.
Nearly nine months after research into the competition and choice in audit
was first commissioned, consultancy group Oxera yesterday confirmed suspicions
that competition is not working effectively.
The 167-page report concluded that a greater number of audit competitors is
needed for the FTSE 350 to ensure competition operated properly, but market
conditions and perceptions made it virtually impossible for the mid-tier to
enter the market.
It also said choice was limited, with some companies having no choice over
which auditor to pick in the short term and that the reduction of a Big Four to
a Big Three would exacerbate competition problems, requiring rules on auditor
independence to be changed.
One senior fund manager told Accountancy Age: ‘We now need to look
at whether structural intervention can play its part in resolving the issues
Iain Richards, head of governance at Morley Fund Management, said the
report’s conclusions came as ‘no surprise’, but it was important that
policymakers ‘avoid falling into the trap of focusing on protecting the Big Four
at the expense of essential and effective, longer-term reform’.
PricewaterhouseCoopers, which could stand to lose the most from any major
changes to the market, read the report rather differently.
‘I’m not convinced that there is a substantial problem,’ said Peter Wyman,
head of professional affairs at the firm. ‘My initial impression is that we are
operating in a fiercely competitive market.’ He added that the report showed a
‘substantial element of market choice’.
Trade and industry minister Gerry Sutcliffe, who was responsible for
commissioning the joint report with the Financial Reporting Council, urged those
in the profession and other stakeholders ‘to continue to work with the FRC in
taking this important work forward’.
The regulator has arranged a stakeholder meeting for 26 April where
interested parties can air their views on the report.
For more on the competition report check out…
Competition report: the Big Three
A Big three would undermine investor confidence and the effectiveness of the
Competition report: audit costs on the
Big Four dominance has made audits more expensive over the last decade
Competition report: welcomed by mid-tier
Current ‘domination’ a risk to the market
Competition report: ‘What everyone
expected’ – AQF
Head of lobby group on audit quality accepts report’s findings
Competition report: Liability
ICAS argues proportionate liability ‘essential’ to avoid
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