Big four accountancy firms should break up, say MPs

https://www.theguardian.com/business/2019/apr/02/big-four-accountancy-firms-should-break-up-say-mps

Big four accountancy firms should break up, say MPs

Britain’s big four accountancy firms should face a full break-up to weaken their “stranglehold” on an audit market discredited by corporate failures including Carillion and BHS, MPs have suggested in a hard-hitting report. The business, energy and industrial strategy (Beis) committee said the competition watchdog – which is due to release its final recommendations for reform of the audit industry – should consider the break-up of the country’s biggest accountants by separating their audit and consulting arms.

Between them, the four big players – KPMG, Deloitte, PwC and EY – conducted the audits at all but one of the UK’s 100 biggest listed companies last year.

“The big four’s dominance has fostered a precarious market which shuts out challengers and delivers audits which investors and the public cannot rely on,” Rachel Reeves MP, the Labour chair of the committee, said. “Our report proposes a range of measures to boost competition, improve the audit product, and ensure that the UK continues to be a world leader in corporate governance.”

The committee suggested imposing market share caps on the big four and bringing in joint audits conducted by a big four player and a challenger firm. The latter proposal is already supported by the Competition and Markets Authority.

Reeves said the big four were also often using their audit work as a route to “milking the cash-cow of consultancy business”. The CMA has already proposed splitting the audit and consulting at an operational level but has stopped short of recommending a full separation.

But the Beis committee’s report, The Future of Audit, argued for a “full structural break-up” of the big four. A break-up would be more effective in “tackling conflicts of interest” and providing the “professional scepticism” needed to deliver high-quality audits, the committee said.
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