Big four's dominance of audit queried

Published on Thursday 13 April 2006 01:14

A GOVERNMENT report into the dominance of the UK's "Big Four" accounting firms has concluded that competition is being hindered and prevents smaller firms from taking a foothold among top listed firms.

Competition and Choice in the UK Audit Market, commissioned by the Department of Trade and Industry, focused on the role of the Big Four: Deloitte & Touche, Ernst & Young, KPMG and PricewaterhouseCoopers.

It found they audit 97 per cent of the FTSE 350 and that 88 per cent of those companies would never consider using a mid-tier firm over one of the Big Four.

In Scotland, the Big Four hold a similar level of dominance.

The Scotsman's research revealed last year that 90 per cent of the 50 biggest Scottish companies by turnover use the Big Four firms for auditing, including all of the top 25 companies.

Listed companies paint a similar picture. All 25 of Scotland's largest listed companies use the Big Four firms, with AG Barr, Scotland's 62nd-biggest company, the largest public to use a mid-tier accounting firm, Baker Tilly.

While yesterday's report said the dominance of the Big Four was not diminishing the quality of auditing, it raised concerns for firms using the services of more than one auditing firm, and that competition was extremely limited. A merger or collapse among the Big Four could create "serious problems for some companies and a loss of investor confidence", it said.

While most parties welcomed yesterday's report, there was no clear indication of how the situation could be changed. Andrew Godfrey, Scotland managing partner for Grant Thornton, said expecting a mid-tier firm to fight for the largest audit accounts, especially from financial service companies, was "cuckoo land".

He added: "The sheer investment in skills that you would need to make against a very uncertain payback is unlikely to make it attractive."

A spokesperson for the Institute for Chartered Accountants of Scotland said the report showed the need for a proportionate liability regime to maintain at least the existing level of competition.

The Association of Chartered Certified Accountants in Scotland said artificial blocks to competition should be axed, but there was no easy way to do so.

While no recommendations came from the report, the Financial Reporting Council has now promised to kick off a debate for future action with a discussion document of key questions next month.