Feb 22

Commission Reports The Big Four Don’t Provide Enough Competition for the U.K.

By Renee Howdeshell in Commentary, Financial regulation, Financial Reporting
February 22, 2013

The U.K. Competition Commission has released preliminary findings that conclude that the audit market is not serving shareholders, citing “the tendency for auditors to focus on satisfying management rather than shareholder needs”. Overall, the commission found fault with the lack of effective competition, noting that 67 percent of FTSE 100 companies and 52 percent of FTSE 250 companies have had the same auditor for more than ten years. This lack of switching was blamed on a number of factors, most notably a general preference to avoid switching costs and an overall reluctance to use a firm outside of the Big Four (KPMG, PWC, Ernst & Young and Deloitte).

The commission also provide possible remedies, which are similar to suggestions that have been made in the U.S., including:

mandatory rotation of audit firms
prohibition of ‘Big-4-only’ clauses in loan documentation
strengthened accountability of the External Auditor to the Audit Committee
enhanced shareholder-auditor engagement
extended reporting requirements.

Not surprisingly, the findings were met with resistance from the Big Four and open arms from the second tier firms.

Renee Howdeshell

Renee Howdeshell is a founding member of Fulcrum Inquiry, an accounting, finance and economic consulting firm that performs damage analyses for commercial litigation, forensic accountings, royalty & distribution audits, financial investigations, and business valuations. Ms. Howdeshell holds a degree in Finance and Marketing from the University of Virginia's McIntire School of Commerce and is a Certified Public Accountant (CPA) and a Certified Fraud Examiner (CFE). She has testified as an expert witness in federal court, CA state court and arbitration regarding the results of her work. She can be reached at (213) 787-4112 and her resume is available at www.fulcrum.com.

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