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OFT: Dominance of big four auditors hitting competition

The Office of Fair Trading is considering referring the auditing market to the Competition Commission over concerns the dominance of the big four firms is undermining competition.

The OFT says its concerns about the market are sufficient to be referred to the Competition Commission but it is currently looking at whether the Commission is in a position to resolve them before asking it to take on the case.

OFT executive director Clive Maxwell says: “We have been concerned for sometime about the extent of competition in this market because there are only four main players and substantial barriers to entry and switching.”

PricewaterhouseCoopers, KPMG, Deloitte and Ernst & Young audited 99 of the the FTSE 100 companies in 2010, according to a recent report by the House of Lords economic affairs committee.

It added that on average those firms only change auditors once every 48 years.

The OFT says it will now consult on whether “appropriate remedies” are available to the Commission as well as on the benefits of operating in the UK on a unilateral basis compared to following an international approach.

A draft directive is expected from European Union internal market Commissioner Michel Barnier in November which could see the introduction of passporting for auditors operating across borders and a “two speed” set of rules, with a lighter touch for smaller firms to encourage them to grow.

BDO senior audit partner James Roberts says: “We have long maintained there is a lack of competition in this market, but we are confident there are a range of measures within the competition authorities powers which could much to remedy this.”

An Ernst & Young spokeswoman says: “We support increased choice in the audit market to enable audit committees to have a wider range of audit firms to choose from in meeting their audit needs.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Only about 10 years too late.
    After Equitable Life and the big banks who in their right minds is going to trust a set of accounts from these sources

  2. “The OFT says its concerns about the market are sufficient to be referred to the Competition Commission but it is currently looking at whether the Commission is in a position to resolve them before asking it to take on the case.”

    In other words is this, “We won’t intervene if we have to take on someone big enough to tie us up in lawyers till Kingdom come, when we can hit some easier case or smaller fry hard and get lots of publicity for it?”

    I find this attitude absolutely disgraceful! If it’s right, the Commission should be taking on the case.

  3. About time – reform of this over-powerful and arrogant cartel is at the top of my personal lengthy list of reforms I’d like to see in financial services.

    I’d like to see a wider investigation particularly looking at conflicts of interest within these firms, their conflicted relationships between audit and “consultancy” work and their revolving doors relationships with regulators, but can’t see this happening. I’ve come across so many examples of practice I regard as corrupt regarding these firms within my 25 year career that I can’t count them, and I am afraid to mention them in case I’m identified and discriminated against. It is revealing that, of all the numerous institutions that could and should have done something about this situation years ago, only the House of Lords has had the courage to put its hand up and try to get something done.

  4. Funny how 3 out of the four are involved in the Keydata/Lifemark debacle.
    Will the fourth, Ernest & Young be asked to look at the overall handling in due course? How cosy.

  5. The problem is readily solved.

    All Auditors must relinquish client’s every three,four or five years of service. To avoid a too cosy relationship

    It cannot be left to shareholders voting at AGM,s
    as the result’s are far too easily fixed.

    Also is it not time that policyholders and shareholders had equal power over the control of
    the Board of Directors?

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