Competition Commission raps Big Four accountants

22 February 2013 Last updated at 07:52

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Competition Commission raps Big Four accountants


The big four accountancy firms
check 90% of the UK's listed blue chips
Continue reading the main story
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Britain's four biggest accountancy
firms have been heavily criticised by the Competition Commission.

The
regulator has accused PWC, Ernst & Young, Deloitte and KPMG of being too
dominant and enjoying too cosy a relationship with company management.

The four accountancy firms act as auditors for 90% of the UK's stock-market
listed big companies.

They have also been criticised in the past for not doing enough to warn of
the financial crisis.

The Competition Commission also found that companies do not tend to change
their auditors - with almost a third of the FTSE 100 having used the same one
for more than 20 years.

The concern is that the relationship between the two becomes too comfortable
with a "tendency for auditors to focus on satisfying management rather than
shareholders' needs".

Laura Carstensen, chair of the Audit Investigation Group, said: "We have
found that there can be benefits to companies and their shareholders from
switching auditors, but too often, senior management at large companies are
inclined to stock with what they know."
'Significant
flaws'
She said her organisation was looking into different ways of encouraging
competition in the industry. Mandatory rotation of audit firms is one idea being
considered, as well as forcing companies to put the contract out to tender after
a certain period.

The Big Four argue that the market is competitive and say many big clients
doubt that smaller firms could build up their expertise fast enough.

"We are very clear that we report to the shareholders and engage with the
Audit Committee as their representatives," said PWC's Richard Sexton.

"We believe that the Competition Commission have grossly underestimated the
critical role that Audit Committees play in protecting the interests of
shareholders."

In a statement, BDO, one of the smaller rivals to the Big Four, said it was
pleased that the Competition Commission had confirmed "significant flaws" in the
market.

"No one solution will achieve market correction, but rather a combination of
tendering requirements, encouragement of transparency and dialogue between
auditors, companies and investors, and reform of outdated exclusionary practices
should provide a backdrop for a healthier FTSE 350 audit market," said Simon
Michaels, managing partner at BDO.

The report is a preliminary one, with the final version due to be published
in October.

Big Four Accountants 'Dominating Market'


The UK's top companies could be forced to change
accountancy firms following an investigation into the "big four's"
dominance.


8:44am UK, Friday
22 February 2013

Over 30% of top companies have had the same auditor for
more than 20 years







An investigation into the UK's audit market has found that
competition is restricted because it is hard for listed companies to switch
accountants.

The Competition Commission (CC) said the so-called "big four" audit firms -
Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers - dominate the
market, as revealed by Sky's City Editor on Thursday.

But it did not find sufficient evidence of collusion between the accountancy
giants to recommend breaking them up.

The watchdog said it was looking into a host of measures that could increase
competition - including mandatory tendering for audits and mandatory rotation of
firms by companies.

Its provisional findings, which come after over a
year of investigation, highlighted that over 30% of FTSE 100 companies and 20%
of FTSE 250 companies have had the same auditor for more than 20 years.

Britain's largest listed companies lack bargaining power, the CC said, given
the difficulties in comparing alternatives and the costs involved.

Its provisional findings also highlighted that audit firms often ignore the
interests of their primary customer - companies' shareholders - meeting the
demands of management instead.

This is in part because it is the executive team that decide whether or not
to retain the firms' services, the CC said.

As a result, it added, competition focuses on factors that are not in line
with shareholder demand.

The chairman of the Audit Investigation Group, Laura Carstensen, said
companies and their shareholders benefit from switching auditors.

"Too often senior management at large companies are inclined to stick with
what they know, particularly when it is difficult to compare with the
alternatives and the incumbent auditors are in a strong position to hold on to
the business," she said.

She added: "It will undoubtedly be challenging to change a long-standing and
entrenched system but our proposals will look to create a situation where
tendering and switching become the norm, and where greater transparency and
information increase both contestability of the market and the ability of
shareholders to judge the service they are getting."

The Office of Fair Trading referred the market to the watchdog in October
2011, and it has until March 21 to respond to the outlined proposals.

The CC's findings come as the European Union looks at boosting competition in
the audit market and the US considers introducing auditor rotation.

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