Big Four auditors face monopoly interrogation

Regulator to demand answers from accountants over their market dominance

The Big Four accountants face a grilling from the Competition Commission this week, as the regulator's probe into the audit market looks at what actions might need to be taken against the firms.

Representatives from Deloitte, Ernst & Young, PriceWaterhouseCoopers and KPMG will defend their dominance in auditing major listed firms under what sources believe will be intense, highly detailed questioning. The commission and European regulators are concerned that there is a lack of players in the market, with some critics even suggesting that they must be broken up to help smaller rivals, such as Grant Thornton and BDO Stoy Hayward, catch up.

The UK inquiry, which is being led by former Slaughter & May lawyer Laura Carstensen, has been investigating the market for nearly a year and is considered to be more thorough in its assessments than European officials.

However, this week is a tough one for the Big Four, as the evidence they give is likely to form the basis of the solutions, if any, that are required to improve the accounting market. In each instance they are expected to be questioned for at least four hours.

An industry source said: "It won't be quite like a select committee, but there will be detailed questioning."

The Big Four are aware that, with the audit accounts of virtually all of the FTSE 100 and four-fifths of the 350 biggest listed firms, they are considered to be the purveyors of a closed market as never before.

PWC's UK chairman, Ian Powell, has countered saying that competition in the industry is "ferocious".

However, there was some relief earlier this month when the commission appeared to set aside some of the concerns, or "theory of harms", about restricted market behaviour. In particular, there was a belief that there was "tacit co-ordination" between the firms that restricted competition.

Due to the stability of the market, with each of the four accounting giants broadly retaining their market share year-after-year, there was the risk that there was "an implicit understanding between parties" even if no formal arrangements existed to maintain the oligopoly.

However, the commission said in a working paper that there was not sufficient evidence to back up this claim, but it could revisit the issue.