The FT has reported this morning that:
The UK accountancy firm Grant Thornton has decided to stop bidding for audit contracts from Britain's largest listed companies after concluding it is too difficult to compete with the “big four” firms that dominate the market.
The decision will deal a major blow to efforts by the four – Deloitte, EY, KPMG and PwC – to convince politicians and regulators not to intervene in the market.
It will also increase pressure on UK authorities to tackle their dominance: the big four's share of FTSE 350 auditing has increased from 95 to 98 per cent over the past five years.
Read the full report and it is clear that Grant Thornton can present an entirely rational reason for doing this.
But also read the report and what is clear is that this is politicking by Grant Thornton. And I am happy to applaud them for that.
The fact is that Grant Thornton is pointing out in the clearest possible way that they can that there is a closed shop in the market for the audits of large companies: apparently only the Big 4 can do. But as Grant Thornton also point out they can win 40% of the public sector audit market. There is then an oligopoly, but as they are making clear, it is not based on competence. Rather, as is always the case in political economy, it is based on power. And in this case the power is being used in not just an anti-competitive fashion, but in an anti-social one too.
The time when the audit market has to be reformed has arrived. Maybe there will be no market at all. Maybe Grant Thronton will not win from their gambit. But, candidly and like the rest of us, they can also hardly lose from it at present. The Big 4 are failing us. Their dominance has to end.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Bank facility agreements for large loans stipulate a requirement for a big 4 auditor, so it’s hardly surprising they dominate. Why is this? Clearly the banks for whatever reason have no confidence in the mid tier audit firms. Nobody seems to find it odd that management teams in large organisations don’t even think about appointing mid tier auditors? This is the reason
You mean the City looks after its own?
“Bank facility agreements for large loans stipulate a requirement for a big 4 auditor”
Is this not an illegal anti-competitve trade practice? Surely.
Marco Fante says:
“Bank facility agreements …….. anti-competitve trade practice? Surely.”
Yes Marco, and your point is ?
Consider then, what we were discussing yesterday about the relative merits of the NHS being constituted as numerous trusts rather than as one centralised behemoth.
But the NHS has to be a centralised behemoth to get rid of the poistciode lottery
And maybe the state should be auditing too….
I’m not convinced that centralisation is a cure for a postcode lottery.
It certainly doesn’t work well with government.
As for health services what works in a region like York with an arterial road system won’t work with an area like Cornwall or Cumbria where the habitation forms a ring around a chunk of effectively dead and almost impassable ground. A centralised system requires a higher degree of flexibility than most centralised systems are comfortable with. So you get a different postcode lottery result.
Whatever system is the basis it falls apart if there is a lack of responsiveness at a local level. The big difficulty is determining (I think) what is the appropriate size of a locality and it will be variable dependent on a number of factors not just topography.
Certainly there must be a strong case for considering a state audit service, though there would be howls of objection.
It could
It doesn’t
Precisely because we are dedicated to the wrong types of decentralisation
I think it’s pretty clear the nhs dosent use its bulk buying power effectively. I’ve never understood why not.
I agree: me neither
Very odd indeed
But true right across government
The effectiveness of the GLC’s procurement system was one of thr reasons for Thatcher’s hostility towards the GLC, which showed that it was possible for governmental organisation to be both operationally, even commercially, successful AND also socially and ethically aware, by importing ethical considerations into its procurement process.
In the neoliberal la-la-land of “perfect markets on the basis of fill information” such a thing was not meant to be possible, and so the GLC had to go, to be replaced by CCT, and a purchaser/ provider split, with the private sector the preferred, and often the only permissible, provider – otherwise known as swapping effectiveness for ineffectiveness.
John McDonnell ran that….
That’s my response to Anth’s comment with a little dig at Richard 🙂 (Not related to John McDonnel and/or the GLC
Probably because deals are struck by a couple of chums at the top of centralised organisations
I work for one of them and I agree.
(am not an accountant I work in IT, don’t lynch me)
This is not personal
The Foundation Trusts are constituted as public limited companies in order for them to run like businesses and be able to enter into private financing deals. This means that they now have deficits that make them ‘unsustainable’ if they can’t earn enough fee income and don’t have sufficient additional private sources of income.
When we had a single Public Health Service that didn’t happen. Budgets were allocated to serve population need, not individual episodes of care. If there was a surplus at the end of the year that meant that the need was being over-estimated, not that they had made a profit. If there was a shortfall that would be made up. Their accounts and practices would be audited to make sure they weren’t wasting money and if they weren’t then they would have an increase for the following year. It is a system that has its own complications, but it is a good public service principle, nonetheless.
The breaking up of the DoH centralised service into Agencies and Trusts was what destroyed the monopoly power of the NHS as what must surely be one of the largest procurement groups in the world. I worked for one of the new DoH agencies in the early 90s. We were given the DoH procurement books to use for the first year, but had to negotiate our own procurement after that. Now they can’t enforce the model on the various arm’s length bodies because they are autonomous businesses.
Making them plcs makes them liable to insolvency law
That makes arbitrary funding have legal consequences and might impose rationing
But it remains arbitrary funding nonetheless
Richard – I would very much like some clarification from you on a matter which I cannot see is legal. Theresa May says she is to set a long term (10 year) funding plan in place for the NHS. But we have mandatory Finance Bills every year, don’t we? And a legal basis for Parliament that says that it may not bind the decisions of future parliaments. Income and corporation taxes have to be set every year by law. So do spending plans.
Do you think she can do what she proposes to do without major new legislation?
Thanks
Call it hogwash
I think there no chance of any binding legislation
There was someone the other day who didn’t understand NI. You wrote words to the effect of it being an historical anomaly. I know you write a lot on this subject but, if it is useful, I have a blog on the history and complications of NI http://publicmatters.org.uk/2018/03/29/the-myths-and-legends-of-hypothecated-national-insurance/
Thanks