The Big 4 won’t like being broken up, but the demand has to be made

Posted on

The FT has noted this morning that the Competition and Markets Authority, which is conducting a review into the failings of the audit sector has reservations about its task, saying::

The CMA has already indicated it has reservations about a forced break-up of auditors, which would involve either dividing the Big Four into eight smaller firms that carry out consulting and auditing, or forcing the firms and their smaller rivals to form “audit only” groups that have no ties to their consulting arms.

They add:

The industry is opposed to both options.

Which is no great surprise. Thankfully the FT notes there are alternative voices:

However, a group of academics and audit experts — which include Atul Shah, professor of accounting at the University of Suffolk, and Richard Murphy, a chartered accountant and tax campaigner — urged the CMA to consider creating audit-only firms to “reduce the opportunity for . . . conflicts of interest”.

It also recommended that the Big Four should then split their remaining audit-only practices to create eight smaller firms solely focused on auditing. This would address concerns over the continued dominance of the Big Four.

In its submission to the CMA, the group said: “We believe that the culture and ethics of auditing have failed miserably at too high a cost to society. In particular, we suggest that the [Big Four] have failed to make integrity, sincerity and transparency central to their culture, despite being given [an] effective monopoly to audit large corporations.

“These firms have become entirely profit-oriented commercial entities, helping clients to secure public contracts and assets whilst avoiding taxes on an industrial scale. In the process, they have also produced a generation or more of professional accountants who have gone on to run big corporations with this culture and values, so spreading the virus.”

We have no choice but try to influence outcomes. It is the way change happens.