Recent research by The London School of Economics and, moreover, BDO Stoy
Hayward’s interpretation of that research has brought the subject of
concentration in the audit market back into the news.
While the LSE research seeks to avoid the pitfalls of the 2006 Oxera report,
some of its under-lying assumptions still raise significant questions.
For example, the research uses a model that implies regulation and complexity
affect all companies in the same way and at the same time.
This just isn’t reality. Changes in regulation and complexity (and in systems
and processes) have a variable and often enormous effect on businesses and audit
The report may or may not show a correlation between market con-centration
and audit fees.
It is BDO’s attempts to present the research as showing causality that raises
Misusing LSE’s analysis to make such a point, and to try to tilt the playing
field in favour of new entrants, is not helpful.
My experience over more than 25 years as an auditor is that the market is
competitive indeed, highly competitive.
Clients and prospective clients I see are not beholden to my firm, or any
The move from five very large firms to four did not have a significant effect
on the UK market.
The important question is whether quality is being maintained and improved.
Just maybe, the market consistently chooses a ‘big four’ provider, because it
recognises their strength in delivering the quality of services they demand.
Quality underpins the ability of firms such as PwC to compete across the
entire audit market and is a result of sustained long-term investment in people,
networks, infrastructure and methodologies, across geographies, sectors and
The opportunity to invest and be competitive is open to all and always has
been. It’s up to those wishing to participate to make the necessary investment
on a continuing basis to enable them to up their game.
The ultimate goal must be to continue to provide companies with high-quality
audit work not to simply increase the numbers in the ‘big’ firm pool for its
Richard Sexton is head of assurance at
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