The Financial Times
Madison Marriage in London
– Sep 17, 4:53 AM
Senior UK politicians have held an “unprecedented” private meeting with the largest challenger audit firms outside of the Big Four in an attempt to find ways to solve the lack of competition among auditors. Rachel Reeves, chair of the…
arvindmahajanSenior UK politicians have held an “unprecedented” private meeting with the largest challenger audit firms outside of the Big Four in an attempt to find ways to solve the lack of competition among auditors.
Rachel Reeves, chair of the Commons business select committee, which recently led an inquiry into the collapse of government outsourcer Carillion, held the gathering in Westminster on Tuesday last week with at least seven other committee members from the three main parties.
The meeting comes at a time of growing pressure on the accounting industry, which is facing scrutiny from regulators and government over its structure and reliability.
Politicians are concerned that the Big Four firms— EY, KPMG, Deloitte and PwC — have become too powerful, leading to a deterioration in audit quality. Greg Clark, the business secretary, earlier this year launched an official review into the Financial Reporting Council, the accounting watchdog, after criticism of its approach to policing the audit market.
The firms that participated in the 90-minute meeting included Grant Thornton, BDO and Mazars. Michael Izza, chief executive of the Institute of Chartered Accountants in England and Wales, also attended.
Representatives for the Big Four were not present, although it is understood they will attend a separate meeting with the select committee.
A partner at one of the firms that attended, speaking privately, said the level of political interest in the audit market was “unprecedented”.
“This has never happened before for us,” he said. “There is a realisation that when a thing like Carillion blows up, it does damage all over the place. The politicians are getting it in the neck as well and want to avoid that happening again.”
Ideas that were put forward included introducing a cap on market share for auditors of listed companies — a suggestion that has been floated by BDO; establishing an independent body to appoint auditors, which was mooted by Grant Thornton; and introducing a joint-auditor system, which was put forward by Mazars. There was broad agreement that many of these measures could be introduced concurrently.
Some of those present also argued strongly in favour of banning Big Four alumni who hold roles as company directors from participating in auditor appointment processes.
The firms are understood to have advised the MPs that they are capable of auditing many companies in the FTSE 350 index, despite the fact that this is an area currently dominated by the Big Four.
However, some of those at the meeting raised concerns about the smaller auditors’ ability to cope with potentially heavy fines if they took on several large listed clients and were suddenly subjected to heavy scrutiny from regulators “looking for mistakes and problems”.
“It would be very difficult to persuade our partners to take on these audits [in that kind of situation],” the partner said.
Ms Reeves declined to comment on what was discussed because it was a private meeting
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