Has the merger that created PricewaterhouseCoopers created a regulatory and
competitive bind that blights the current audit market?
As the firm marks the 10th anniversary, next month, of what was known as the
‘mega-merger’, the one that forever transformed the accountancy landscape, it’s
only natural to ask whether it was a good idea at the time. The suggestion is
that it wasn’t. Some might argue, as they have done of late over the big banks,
that they are too big to fail.
What does that mean? It means that the markets are so dependent on a small
group of enormous firms that the risk of failure creates a following risk of a
huge regulatory crisis.
But it is not clear that size is the issue. It is perhaps better to see it
another way. The Big Four are too few to fail. By that we mean that more
global-sized firms are needed to spread the regulatory risk.
PwC has undoubtedly been a hugely successful business since the merger. It
has global dominance, it has instant and authoritative brand recognition in the
markets and it has become associated with the biggest corporate names. It works.
But there are not enough firms like PwC out there.
Moves are under way to improve the chances of other firms competing more
effectively with PwC but the signs were there 10 years ago that regulators
should have seen the risk. That’s because in the same year forces joined to
establish PwC, KPMG and Ernst & Young also tried to merge. If that had
proved successful we would have had a Big Four then and we would not have had to
wait for Enron to remove Andersen from the equation.
Warnings over auditor competitiveness should have been heeded more closely at
the time. If they had been, we might be a very different position today.
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