The proposed regulatory clampdown of the "big four" accountants' dominance over the listed audit market was undermined yesterday with findings that suggest a massive improvement in the quality of their work.
KPMG, PricewaterhouseCoopers, Ernst & Young and Deloitte are facing Competition Commission proposals to break their stranglehold on the FTSE 350, where they run the numbers of more than 95 per cent of those companies.
However, the Financial Reporting Council said 79 per cent of FTSE 350 audits reached the highest levels of quality set by the corporate governance watchdog, up from just 55 per cent in 2011-12. By contrast, fewer than half of those audits assessed of non-FTSE 350 firms, where there is a better balance between the "big four" and the rest of the industry, showed fewer than half achieved the best grades.
These included the accounts of pension funds, charities, and those listed on the smaller Alternative Investment Market. Although the overall sample is relatively small at 85, this will reinforce "big four" arguments that the competition between them is sufficiently strenuous to ensure that they fight hard to provide the best audit standards. Critics have argued that the market is closed to mid-tier firms such as BDO and Grant Thornton that could potentially do just as good a job.
There was also a warning about one of the Competition Commission's key proposals, which is to make FTSE 350 firms put the audit role out to tender every set number of years to ensure an accountant is not in situ in perpetuity.
Paul George, the executive director for conduct at the FRC, said that the trend for tendering had to be well managed to ensure that auditors did not try to lower fees at the risk of compromising the thoroughness of their work.
He added: "We want to make sure that if they are offering reductions in audit fees that it is not at the expense of quality."
The EU will also hold its first public debate at ministerial level on its own proposals for audit reform today. These have generally been viewed as tougher than those suggested in the UK.