Big Four Accountants 'Dominating Market'
An investigation into the UK's audit market has found that competition is restricted because it is hard for listed companies to switch accountants.
The Competition Commission (CC) said the so-called "big four" audit firms - Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers - dominate the market, as†revealed by Sky's City Editor on Thursday.
But it did not find sufficient evidence of collusion between the accountancy giants to recommend breaking them up.
The watchdog said it was looking into a host of measures that could increase competition - including mandatory tendering for audits and mandatory rotation of firms by companies.
Its provisional findings, which come after over a year of investigation, highlighted that over 30% of FTSE 100 companies and 20% of FTSE 250 companies have had the same auditor for more than 20 years.
Britain's largest listed companies lack bargaining power, the CC said, given the difficulties in comparing alternatives and the costs involved.
Its provisional findings also highlighted that audit firms often ignore the interests of their primary customer - companies' shareholders - meeting the demands of management instead.
This is in part because it is the executive team that decide whether or not to retain the firms' services, the CC said.
As a result, it added, competition focuses on factors that are not in line with shareholder demand.
The chairman of the Audit Investigation Group, Laura Carstensen, said companies and their shareholders benefit from switching auditors.
"Too often senior management at large companies are inclined to stick with what they know, particularly when it is difficult to compare with the alternatives and the incumbent auditors are in a strong position to hold on to the business," she said.
She added: "It will undoubtedly be challenging to change a long-standing and entrenched system but our proposals will look to create a situation where tendering and switching become the norm, and where greater transparency and information increase both contestability of the market and the ability of shareholders to judge the service they are getting."
The Office of Fair Trading referred the market to the watchdog in October 2011, and it has until March 21 to respond to the outlined proposals.
The CC's findings come as the European Union looks at boosting competition in the audit market and the US considers introducing auditor rotation.
what do you think?
The creditors (banks) of large corporations inevitably demand an audit by one of the 'Big 4' auditors which narrows their available range of suppliers. Moving to a new auditor involves some fairly heavy time costs for the company while the new auditor spends time gaining an understanding of the client's bsuiness. Hence there is little incentive for a company to move from one giant to another.