Regulator accused of £110m error

Competition Commission's audit reform costs 'materially' underestimated, claim Big Four

The Big Four accountants have accused the Competition Commission of underestimating the cost of sweeping reform of the audit market by up to £110m.

Last week, a commission inquiry led by Laura Carstensen said it would force FTSE 350 companies to look at changing auditors every five years, which she said would cost £30m – barely one-fifth of the highest calculations.

Having to make such regular pitches shocked the largest, most dominant accountants, but the move is designed to give mid-tier firms like BDO and Grant Thornton regular opportunities to win the work. At present, more than 95 per cent of the FTSE 350 is audited by one from only KPMG, PricewaterhouseCoopers, EY and Deloitte – and in some circumstances they have checked the books of a large company for more than a century.

A source at one of the Big Four said the cost could turn out to be as much as £140m, which would be an average of £2m per selection process should one-fifth of the FTSE 350 look at changing their auditors in a given year.

Another said the supposed error in the commission's calculations was "material". David Barnes, head of public policy at Deloitte, told The Independent on Sunday: "The £30m figure seems to be a significant underestimate. The total that auditors bidding for work would spend would exceed £100m a year."

Gilly Lord, head of regulatory affairs at PwC, said: "We think that £30m is a significant understatement given the likely administrative and time burdens involved."

KPMG has estimated a cost of £85-95m. If the Big Four are correct, this would weaken Ms Carstensen's argument that the financial burden to the market would be significantly outweighed by the benefits.

One argument is that more regular tender processes will mean bidders become more efficient at preparing and running their pitches, as would the companies themselves. However, Barclays has warned the commission that regular tendering is a massive burden for multinational groups, as the process can take two years and involve more than 200 staff.

The Big Four have little time to persuade Ms Carstensen's team to weaken the proposal, as the long-running inquiry's final, definitive report is due in September. A commission spokesman said it was "unsurprising" the Big Four would make the claim over cost. He added: "This is one of the issues that we fully expect to be discussing as we come towards publishing the final report."