Big Four accountants push back against breakup proposals

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The Big Four check the accounts of 97 per cent of the FTSE 350

The Big Four accountancy firms have fired back at the competition regulator’s proposal to break-up their UK operations.

In their responses to the Competition and Markets Authority’s (CMA) outlines for shaking up the audit market, Deloitte, EY, KPMG and PwC all resisted a suggested split.

David Barnes, managing director for public policy at Deloitte UK, said concurrent reviews of the sector “could materially damage the UK’s competitive position and particularly London’s place as a leading capital market.”

The CMA presented its initial report into the sector last month, which included the radical proposal of dividing the Big Four to separate their auditing wings from the rest of the business. The regulator is looking for ways to end the dominance of the four firms, who check the accounts of 97 per cent of the FTSE 350.

Read more: Watchdog boss: Auditors ‘clearly responsible’ for detecting company fraud

The other suggested remedies are the introduction of mandatory French-style joint audits, increased regulatory scrutiny of audit committees, a cap on what share of top firms an auditors may work for, improved support for challenger firms, restricting the potential for a major auditor collapse to create a “Big Three”, and introducing an independent peer review system for audits.

Preempting the CMA’s initial findings, KPMG announced in November it would stop selling non-audit extras such as tax consultancy to its audit clients. Last month, EY and PwC told MPs they would do the same, while Deloitte has signalled support for such a move.

Among a tranche of responses to the proposals published by the CMA today, the Big Four – all of which are part of sprawling, multinational organisations – were also united in their criticism of proposals for joint auditing, in which two firms work together and share overall responsibility.

Margaret Cole, chief risk officer of PwC, said the firm “do not believe that persuasive evidence has been produced as to why this remedy would deliver on choice or quality”.

Read more: Auditors should not be ‘policemen’ – but that could change, MPs told

Prem Sikka, professor of accounting and finance at the University of Sheffield, said the Big Four risk a backlash if they contest change too much.

“If [the Big Four] resist reforms, eventually the situation will be created where reforms will be introduced that will not be to their liking,” he told City A.M.

“Public opinion is at a critical point: the more they resist, the more negative public opinion will be, and people will demand harsher measures,” he added.

The audit sector is under close scrutiny, following widespread opprobrium against the Big Four for their role in several audit scandals in recent years, including the collapses of BHS and Carillion. Grant Thornton, which recently lost its position as the UK’s fifth-largest accountancy firm to rival BDO, has also come under fire for its performance as auditor of Patisserie Valerie, the crisis-hit cafe chain.

Sir Donald Brydon, chair of the London Stock Exchange Group, is currently conducting a government-backed review of the sector, which will aim at driving up quality. The CMA’s own report, which is focused on competition, is expected to arrive later this year.