Final decision on the large-firm audit market will follow a six week consultation period
The Office of Fair Trading announced on 29 July 2011 that it has provisionally decided to refer the market for statutory audit services to large companies in the UK to the Competition Commission for a market investigation. The OFT announcement can be read here.
The market for large-firm audits is dominated by the Big Four accountancy firms - Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers. Attention really focused on the role of the Big Four following an extremely critical report by the House of Lords Economic Affairs Committee published in March 2011. The Committee’s view is that:
“…the large-firm audit market in the UK is “clearly an oligopoly with all the attendant concerns about competition, choice, quality, and conflict of interest. It gave no warning of the banking crisis. The narrowness of the assurance it offers is much criticised. Its regulatory structure…is complex and unclear.”
Our post on the Committee’s report can be read here. Following that report, the OFT stated on 17 May 2011 that it had provisionally decided that there are competition problems in the audit market that pass the statutory test for referral to the Competition Commission; we discussed that provisional decision regarding the statutory test in this post.
The OFT’s announcement on 29 July 2011 follows discussion with interested parties in the past two months. There will now be a statutory six week consultation period before the OFT reaches a final decision on whether to refer the large-firm audit market to the Competition Commission for a full-blow market investigation, but that referral now looks increasingly like a fait accompli.
For the Big Four firms, this will not be a surprise but will not make them happy; the next tier of firms, such as BDO and Grant Thornton, will be delighted with anything that increases the chances of them winning more large-firm audit work – at the moment, almost all of the FTSE 100 companies are audited by one of the Big Four.
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