PracticeAuditThis week’s blogs: breaking the monopoly

This week's blogs: breaking the monopoly

The blogs are buzzing this week with talk of opening up audit and credit insurers’ woes

There are some who would argue that it is sufficient to have four large firms
serving the large company audit market, as we have at present. However, I think
this is increasingly a minority view.

I would argue that when, not so many years ago, we had a Big Eight, there
were no concerns about competition and choice.

The same might be argued about the Big Six. If so, has the issue been caused
by the drop to a Big Five or did it only arise following the reduction to a Big
Four? This is a difficult one to answer, not least because the reduction to four
was involuntary and thus it may be necessary to have more firms able to deal
with this part of the market place to ensure we don’t have a recurring problem
if there is another involuntary withdrawal.

Given that no one will create a firm of the size of any of the existing Big
Four, we probably need at least two firms that are able (and are allowed) to
participate in the audit market for larger companies. While more would be
better, eight should be more than sufficient. We also need to ensure that
increasing the number of firms does not have an adverse effect on audit quality,
which will limit the number of firms that can realistically provide services to
this sector of the market place.

Jeremy Newman, CEO, BDO International
blog.e-bdo.com

‘Credit Insurers to blame for Swine flu Pandemic!’ Well, they might just as
well be blamed for it, since they are being blamed for most of the country’s
woes since the credit crisis began.

Most recently, The British Plastics Federation said 6,800 jobs are going to
be lost as ‘firms struggle to obtain credit insurance’. I am presuming here that
companies involved in supplying plastics have pulled out of doing business with
clients when credit insurers have pulled cover on them, on the basis that these
clients represent a high risk of defaulting.

If plastics companies thought that credit insurers had got their assessments
wrong, they’d go ahead, carry on doing business and and take the risk on
regardless, right? If this were the case, no jobs in the industry would be at
stake.

Lets face up to the facts, credit insurers will not take on ‘known risks’,
otherwise their business
model would be totally suicidal.

There are large numbers of companies struggling in this recession that do not
represent viable credit risks at the moment. In this particular economic storm,
don’t expect credit insurers (who have suffered more than most) to back them all
with their money.

Martin Williams, MD, Graydon UK
riskybusiness.accountancyage.com

Related Articles

Eight landmarks in the history of accountancy

Accounting Standards Eight landmarks in the history of accountancy

1y Acccountancy Age
Friday Afternoon Live: Discussing the aims and intent of Connolly-driven CogitalGroup

Accounting Firms Friday Afternoon Live: Discussing the aims and intent of Connolly-driven CogitalGroup

1y Kevin Reed, Writer
Leader: Why Connolly's new venture is unlikely to chase Big Four; or follow failed consolidator model

Accounting Firms Leader: Why Connolly's new venture is unlikely to chase Big Four; or follow failed consolidator model

1y Kevin Reed, Writer
FRC raises concerns about FTSE 350 audit market concentration

Audit FRC raises concerns about FTSE 350 audit market concentration

1y Richard Crump, Writer
One in 20 audit firms quit as market evolves

Audit One in 20 audit firms quit as market evolves

1y Kevin Reed, Writer
EY appoints new global and UK&I government & public sector assurance leader

Accounting Firms EY appoints new global and UK&I government & public sector assurance leader

1y Richard Crump, Writer
EU audit reform to open up £10bn market for firms

Accounting Firms EU audit reform to open up £10bn market for firms

2y Richard Crump, Writer
KPMG quits as FIFA auditor

Accounting Firms KPMG quits as FIFA auditor

2y Richard Crump, Writer