OFT should examine Big Four market position

LORD MYNERS, the former City minister, has warned that the dominance of the Big Four accounting firms poses a “systemic risk” and should be diluted, possibly through an investigation by the Office of Fair Trading (OFT).

Appearing yesterday before a House of Lords committee examining the role of the audit industry in the banking crisis and the dominance of the Big Four firms, Myners said that audit services in the banking industry had become too concentrated and may “already have gone too far”.

He appealed to “enlightened self interest” among shareholders, who he said could require companies to put audit contracts out to tender to firms outside the Big Four, in order to improve competition in auditing.

But if self regulation should fail, one option could be to refer the issue to the OFT, the UK competition watchdog, Myners said.

His comments will alarm the Big Four firms, as politicians and regulators consider proposals to improve competition in the audit industry and tighten rules on the sale of consultancy services to audit clients.

The European Commission is considering a mandatory rotation of auditors and a cap on advisory fees.

Update 21.1.2011 12:03PM

Richard Sexton UK head of assurance at PwC said this week: “The House of Commons’ Treasury committee looked in detail at the role of auditors during the financial crisis and found very little evidence that auditors failed to fulfil their duties as currently stipulated.

“That is external scrutiny in action. Irrespective of such comments we, as all market participants need to, have reflected on how we can further improve the quality of what we do.”

He added: “”Lord Myners raised the risk of market disruption if a Big Four firm collapses. However, PwC disputes Lord Myners’ assertion of ‘systemic risk.’

“No audit firm is too big to fail, but the crux of the issue rests on what should be done to avoid such a situation if a firm collapsed and how the audit market would react.

“The market needs to reinforce and ensure the need for high audit quality. This is the joint responsibility of the firms through their focus and investment in quality and the FRC’s Audit Inspection Unit in collaboration with other regulators through their oversight and challenge. We welcome the confidence that this process brings.”

(Picture: Lord Myners appears in front of the Lords economic affairs committee © Crown Copyright)