‘Big Four’ setback following auditor decision

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The news that Britain’s biggest companies could be forced to switch auditors was met with disappointment by the big accountants, but raised a cheer among their smaller rivals.

The ‘Big Four’ accountants – KPMG, PwC, Ernst & Young and Deloitte – insisted there is strong competition after the Competition Commission announced plans to end the cosy relationship between big accountants and the UK’s biggest PLCs.

The ‘Big Four’ pointed out that competition is driving fees down and there have been some recent auditor changes among big companies.

PwC said its audits clearly report to shareholders and that the Competition Commission has “grossly underestimated” the critical role the audit committees play in protecting shareholder interests.

Ernst & Young said it was pleased the watchdog found no collusion, abuses or excess profits, but rejected accusations that the audit market is not serving shareholders.

Hywel Ball, head of assurance, UK & Ireland, at Ernst & Young, said: “We disagree strongly with the Competition Commission when it says that ‘the audit market is not serving shareholders’.

“We believe that competition between audit firms is healthy and robust and that the evidence supports this.

“We also are focused first and foremost on audit quality – it is our primary responsibility and directly in the interests of the shareholders of the companies we audit.”

Simon Collins, chairman and senior partner of KPMG in the UK, said: “We believe that audit quality and competition in the UK is strong. We fully recognise our duty to shareholders and the absolute importance of our independence.

“We do not agree with the Commission’s conclusion that, effectively, audit committees are not doing their jobs properly.

“In our experience, audit committees in the UK generally take their responsibilities seriously, both for oversight of the external auditor and financial reporting more generally.”

The Commission found that 31 per cent of the top 100 companies and a fifth of the FTSE 250 firms have used the same accountant for over 20 years.

It will publish its full report next week and final, binding recommendations by the end of the year.

The Commission also proposes banning the use of ‘Big Four only’ clauses.

This would mean that banks can no longer insist on a borrower using one of the four top audit firms. Two years ago, the accountancy industry was heavily criticised in a report by a House of Lords committee over conflicts of interest and the quality of published accounts in the run-up to the credit crunch.

Yesterday, the Commission said it feared that the lack of competition was likely to lead to higher prices, lower quality and less innovation for companies.

But Richard Sexton, PwC’s head of reputation and public policy, said: “The audit plays a fundamental role in the orderly operation of capital markets and serving the interests of share- holders.

“We are very clear that we report to the shareholders and engage with the audit committee as their representatives.”

But smaller accountants, including Mazars, BDO and Grant Thornton, welcomed the findings. They have argued it isn’t worth their while expanding unless there is intervention to free up the market.

David Herbinet, Mazars’ UK head of public interest markets, said: “It’s clearly going to make a significant contribution in Brussels as the European institutions decide the way forward on the future shape of the EU audit market.”

He urged the Commission to go a step further and put a limit on the number of extra advisory services that accountants can provide for clients.

This followed the Commission’s decision to reject calls to curb the Big Four’s advisory services such as tax advice to clients they already audit.

It also rejected calls for joint audits, which would mean the Big Four must share a customer with a smaller accountant.

Joint audits were a top demand from several mid-tier firms and could still be included in the EU law.

BDO said the proposals will help create a healthier market.

ros.snowdon@ypn.co.uk

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