Cable cabinet role fuels audit debate

Last Wednesday’s announcement that Liberal Democrat Vince Cable was now
business secretary brought with it a glimmer of hope the audit industry may soon
be opened up to greater competition.
The decision brought smiles to partners within the city’s fifth and sixth
largest accounting firms, who have long lobbied for greater competition and the
chance to audit a greater portion of the UK’s listed companies.

Cable has been vocal on his desire to break up the Big Four accounting
“cartel” and open the door to increased competition, in particular from lower
rung firms like Grant Thornton (GT) and BDO.
“We have this magic circle of top accountant firms. There is not enough
competition,” Cable said last year.

During his election campaign he told newspapers he wanted firms like GT and
BDO to compete alongside the Big Four. “There is a second tier, of the BDO Stoy
Haywards, who are desperate to get into this stuff. Why they’re impeded, I don’t
know. But I have asked the Office of Fair Trading (OFT) to look at this, and
they have agreed.”

An OFT spokesman said the issue was being looked at as part of a wider study
into competition in the financial services industry.

Graham Clayworth, senior audit partner with BDO, said it was helpful to now
have a figure in government supportive of greater competition.

BDO representatives met with Cable in the lead up to the campaign to press
their concerns. “Vince made some comments about competition before the election
so he is clearly aware there is an issue,” Clayworth said.

Rival firm GT said the most significant issue remains restrictive banking
covenants, which stop large, listed companies from employing a firm outside the
Big Four.

Steve Maslin, the senior partner at GT, described Cable as “engaged and
sympathetic” to the competition issue.

“If we have a very senior figure like Mr Cable examining [audit competition],
that might be a useful catalyst to make some of the banks and legal practices
re-examine what goes on in that area,” he said.
“He clearly is an influential person and it is nice to deal with someone in that
position who is interested in our particular sector.”

Greater auditor competition was once the goal of the Financial Reporting
Council (FRC), under former chief executive Paul Boyle, but the board has
shifted focus since Stephen Haddrill took over in December, concentrating on how
to prevent a Big Four collapse.

Cable’s presence in the department of Business, Innovation and Skills, which
would have to concur with any reforms, may renew the debate.

GT has previously estimated 20% of the 7,200 largest businesses in the G20
would be left stranded in the event of a Big Four collapse. However, listed
companies are often limited in their choice of auditor, due in part to banking
covenants and conflict of interest rules.

Any move to reform competition rules is likely to face opposition from the
Big Four.

John Griffith Jones, chair­man of KPMG in the UK, told the Financial Times
this week it was impossible to create a fifth player. “You can’t. There are
plenty of industries where there are four big players,” he said. “The world just
has to get on with it.”

Further reading:

Advisers warn of taxing times
ahead with Lib-Con coalition

Osborne warned over hasty tax
decisions

Break with the past? So start
making sense