Big four auditors avoid drastic breakup threat from CMA
The big four UK accounting groups KPMG, Deloitte, PwC and EY managed to avoid breaking up after the Competition and Markets Authority proposed changes to give smaller groups access to the largest clients.
The CMA proposed audits of the UK’s largest firms should be carried out by at least two firms of which one should be outside the big four, in a move to grant access to smaller accounting groups.
One of the proposals was to breakup the big four in order to reduce the oligopoly of the large accountancy firms by separating the auditing and consulting arms of the companies.
Another proposal is a possible market share cap to grant firms outside the big four some major clients and thus increase their credibility and balance the sector.
The CMA’s chairman, Andrew Tyrie, said: “Addressing the deep-seated problems in the audit market is now long overdue. Most people will never read an auditor’s opinion on a company’s accounts. But tens of millions of people depend on robust and high-quality audits. If a company’s books aren’t properly examined, people’s jobs, pensions or savings can be at risk.”
“These intractable problems may take some years to sort out. If it turns out that the proposals are not far-reaching enough, the CMA will persist until the problems are addressed,” he added.
KPMG said some of the proposals were “constructive suggestions”.
“Confidence in audit is vital for the effective functioning of the capital markets,” the accounting firm said in a statement. “As a result, it is important that any measures introduced are assessed carefully to make sure audit quality is maintained and improved.”
Kevin Ellis, chairman and senior partner of PwC UK, said it is a “comprehensive package of proposed interventions.
The investigation was triggered by the failures in the Carillion case when the company went into administration and KPMG, EY, Deloitte and PwC failed to spot problems before the collapse, and prioritised profits over proper scrutiny of companies during their audits.
The CMA said it would accept comments on the proposals until 21 January.
Also in a separate review carried out by Legal & General chairman and former Treasury mandarin Sir John Kingman, there were calls for the accounting watchdog, the Financial Reporting Council, to be abolished and replaced with a more powerful "Audit, Reporting and Governance Authority".