The U.K.’s Big Four accountancy firms — KPMG, PwC, EY and Deloitte — have escaped a forced breakup from the Competition and Markets Authority (CMA), The Guardian reported on Tuesday (Dec. 18). Instead, the watchdog is suggesting that major audits of top companies be conducted by at least two firms, one of which must not be one of the Big Four.
Earlier this year, the Financial Reporting Council (FRC) called for a probe into whether a breakup for the four giants could promote competition. The CMA said the proposal would spur competition in the market, and allow smaller auditing and accounting companies to obtain greater market share.
Furthermore, the CMA is reportedly considering a market share cap for the Big Four — again, to spur competition in the market in an initiative that would ensure some major auditing jobs are given to smaller competitors.
The U.K.’s investigation into the Big Four resulted from the collapse of major government contractor Carillion earlier this year, raising criticism over why its auditors were unable to predict its failure. The case also drew criticism for the FRC, with opponents of the watchdog accusing it of being too “weak” with firms it should be regulating, reports said.
An independent review into the FRC, led by Sir John Kingman, said the watchdog took an “excessively consensual approach to its work,” slamming the regulator as a “ramshackle house” built on “weak foundations.”
The “FRC needs to be replaced with a new organization with new leadership, a new mission, new powers and new funding,” Kingman concluded.
Meanwhile, CMA Chairman Andrew Tyrie offered a statement on the regulators’ review of the auditing market, which he said is “now long overdue.”
“Most people will never read an auditor’s opinion on a company’s accounts,” he said. “But tens of millions of people depend on robust and high-quality audits. If a company’s books aren’t properly examined, people’s jobs, pensions or savings can be at risk.”