The audit market is “fiercely competitive and transparent” according to Big
Four firm Deloitte, which sees no reason to open the top-heavy industry to
Deloitte believes audit quality is “higher than ever” and said it has seen
“no evidence of anti-competitive behaviour”, according to its submission to the
upcoming House of Lords inquiry into audit competition.
“Our experience is that the listed-company audit market is one of the most
competitive,” the firm said.
However, in a July report, by the Organisation for Economic Co-operation and
Development (OECD) Deloitte joined fellow accounting firms PwC, KPMG, Ernst
& Young, Grant Thornton and BDO in warning of so-called “Big Four clauses”
which prevent companies selecting an audit firm outside the Big Four.
“In certain countries including the USA, UK, Germany, Spain and Finland we
have encountered clauses or requirements in contractual agreements between
companies and their banks or underwriters that state that only the Big Four
audit firms can provide audit services to the company,” firms stated in their
“Such clauses could also create the perception that only the largest audit
firms have the necessary attributes to audit financial services companies or
large corporations, thereby potentially limiting competition.”
The statement is believed to be the first time the firms have admitted to the
existence of Big-Four clauses, often contained in credit agreements between
banks and companies. The joint submission will likely undermine efforts by the
Big Four to argue restrictive covenants either do not exist or are not a
The House Lords is investigating whether there is enough competition at the
top end of the audit market, and what effect the present domination by Big-Four
have on audit quality.
Large mid-tier firms like Grant Thornton and BDO have warned about the
potential catastrophic risk associated with a Big Four collapse. Grant Thornton
estimates that in the event of a Big Four firm collapse, 20% of the 7,200
largest businesses in the G20 would be left stranded without an auditor.
David Herbinet, head of public interest markets at mid-tier audit firm
Mazars, is pushing for the dual-audit system to be adopted, which is currently
used in France.
“The mood is clearly there for change,” he said.
“People who believe the status quo can continue are in the prehistoric age.”
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