UK watchdog to probe KPMG, Ernst & Young, Deloitte, PwC

Thursday, 19 May 2011 00:00 - - {{hitsCtrl.values.hits}}

LONDON: Britain’s competition authorities will probe the world’s “Big Four” audit firms after finding anti-competitive behaviour.

Britain’s Office of Fair Trading (OFT) said there are reasonable grounds for suspecting features of the market “restrict, distort or prevent competition” in the UK.

The “Big Four” auditors – KPMG, Ernst & Young, Deloitte and PricewaterhouseCoopers – check the books of most blue chip companies in the world.

In 2010, the four audited 99 of the FTSE 100 UK listed blue chip companies which change auditors every 48 years on average, a UK parliamentary report said in March that called for a competition probe of the sector.

The four firms had no immediate comment. The OFT said conditions had been met for referring the sector to Britain’s Competition Commission.

It will hold roundtables in May and June to see whether potential “remedies” exist in practice that the Commission could take and make a formal referral worthwhile.

Otherwise action at the international level could be more beneficial, the OFT said.

“The OFT has been concerned for some time that the market for external audit services to large firms in the UK is highly concentrated, with substantial barriers to entry and switching,” it added.

Past efforts to boost competition in the sector have made little headway. Policymakers also worry markets could be destabilised if one of the four went under -- repeating the collapse of Arthur Andersen in 2002, which shrank the pool of big auditors from five to four.

The European Union’s executive European Commission is set to publish draft legislation later this year to boost competition in the sector. But critics say global action would be needed for such a small group of companies that span the world.

Accountancy bodies welcomed the OFT statement. “The process the OFT has started today will consult broadly on what remedies can be taken to improve choice in the market,” said Michael Izza, Chief Executive of the ICAEW in London.

“This should include looking at removing any artificial restrictions that merely serve to reinforce the status quo,” Izza said.