Audit Commission should be denied to Big Four

Big Four acquisition of the Audit Commission’s audit practice would damage
the market for audit, according to one of the UK’s financial watchdogs.

In a paper submitted to a House of Lords committee, the Financial Reporting
Council has said the audit market could be significantly improved if the
commission’s audit practice was acquired by a smaller firm.

“The government’s decision to abolish the Audit Commission should be used as
a catalyst for greater competition in the audit market,” the FRC told the Lords
economic affairs committee.

The FRC adds that “if secured by a non-Big Four firm it would enhance their
scale and strength and so reinforce their ability to compete. Conversely, if the
work goes to the Big Four, the reverse will be true.”

The news will come as further recognition that there is an imbalance in the
audit market that needs correcting.

The government announced the abolition of the Audit Commission in August this
year and revealed it would sell off it’s internal audit practice, the first
privatisation of the new government. The FRC says the commission’s audit
practice is the fifth largest in the country, after the Big Four, though none of
the work is corporate.

In another submission to the Lords committee, Grant Thornton called for
intervention to cap the number of big audit contracts that can be held by any
one audit firm.

The House of Lords began its examination of the audit market, and the role of
audit, in the banking crisis earlier this week with evidence from three
academics.

During the session they heard that it was “unrealistic” for auditors to have
blown the whistle on Northern rock, the bank that crashed in 2007. They also
suggested that one way to deal with the audit market was to ensure that non-Big
Four auditors stay with their clients as they grow into large companies.

Read more:

Benefits
of scrapping Audit Commission ‘shortlived’

Unrealistic
for auditors raise Northern Rock alarm