Heat turned up on 'Big Four' accountants

Evidence mounts at Competition Commission of 'closed shop' among leading accountancy firms
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The Independent Online

Critics of the Big Four accountants believe that a Competition Commission inquiry into the audit market has found the smoking gun that proves that the market is "a closed shop".

Accountants outside of KPMG, PricewaterhouseCoopers, Deloitte and Ernst & Young have long complained that they are excluded from auditing the accounts of the UK's biggest companies. This has sparked probes into the market at both domestic and European level.

Investigation evidence published discreetly on the Competition Commission website late last week showed that 100 per cent of FTSE 100 companies that switched auditor between 2001 and 2011 did so just between the Big Four. Nearly 80 per cent of FTSE 250 switches were between the dominant players, while only 3 per cent went down to ambitious mid-tier firms such as BDO and Grant Thornton.

In other evidence to the inquiry, chaired by Laura Carstensen – a former City lawyer dubbed "Supermum" for the way she has juggled a hectic career with raising six children – BDO seized on findings that itself and Grant Thornton are rarely invited to pitch when listed firms hire new accountants.

BDO said: "Even when firms do tender, they only invite Big Four firms – only 23 per cent of FTSE 350 firms going out to tender invited BDO; only 14 per cent invited GT. Less than 3 per cent invited other non-Big Four firms."

James Roberts, BDO senior audit partner, pointed out that around 80 per cent of finance directors and audit committee chairs that took part in a survey carried out by the commission were themselves formerly employed by the Big Four. That suggests they have ingrained beliefs on which accountants are best suited to major audits, even though smaller accountants may have improved.

"These figures bear out our contention that the market is a closed shop," Mr Roberts said.

A source close to the inquiry added: "There's a lot of stuff here that doesn't look good, that raises eyebrows. But what's difficult is working out what the damage is."

The Big Four argue that they dominate because the biggest FTSE companies need auditors with the scale, systems and people who can assess multinational accounts. Also, they believe there is fierce competition between them, meaning there is no issue over price or competence.

In another submission, KMG said that the evidence "clearly shows that companies can, and do, switch if their incumbent audit firm's offer is not competitive".