Home Business News Accountants' books to be scrutinised

Accountants' books to be scrutinised

by LLB Editor
21st Oct 11 2:57 pm

The “Big Four” accountancy firms will have their own books looked over in a full-scale competition inquiry into the business of corporate audits.

The Office of Fair Trading (OFT) has referred the audit market to the Competition Commission because it is concerned by the substantial barriers to entry and low levels of switching in the business. OFT believes the “Big Four” firms – Deloitte, Ernst & Young, KPMG and PwC – earned 99 per cent of audit fees paid by FTSE 100 companies in 2010. Just 2.3 per cent of FTSE 100 firms changed auditor between 2002 and 2010, the watchdog believes.

A House of Lords committee heavily criticised the industry last year for the quality of published accounts in the run-up to the economic downturn and conflicts of interest.

OFT said it made the decision to refer the industry to the Competition Commission after meetings with customers, accountants and regulatory bodies.

John Fingleton, chief executive of OFT, said: “Voluntary and industry-led efforts to increase competition and choice in this market have proved unsuccessful. Following extensive consultation, we have concluded that a reference to the Competition Commission is appropriate.”

Britain’s top accountants have also faced pressure in Europe after the European Commission mooted a possible bar on auditors offering consulting services to audit clients. The OFT said it took into account the possibility of overlapping with the work going on at European level, but said there was enough UK-specific issues to justify a Competition Commission inquiry.

The Commission will aim to finish its investigations within 18 months, although the inquiry could go on for as long as two years, according to the statement.

The major accountancy firms said the market for large audit work is already competitive.

Deloitte chief executive David Sproul said: “We believe the audit market is highly competitive and is an important contributor to UK growth.”

Sproul added that any alterations to the market should not hurt the UK’s growth prospects, the country’s appeal as a business destination or audit quality.

London-based Ernst & Young insisted competition was “alive and well” for audit work, although it said it backed moves for a wider range of audit companies for large firms to choose from.

The OFT’s move to refer the audit market has been backed by BDO, one of the smaller companies that could stand to benefit from more work shifting away from the major accountants. The London-headquartered firm said it had long argued that market concentration should be looked at.

Leave a Comment


Sign up to our daily news alerts

[ms-form id=1]