The Competition and Markets Authority (CMA) has launched a study of the audit sector in the UK, to examine concerns that it is not working well for the economy or investors.
It plans to issue provisional findings before Christmas with a view to completing its work as soon as possible thereafter.
As part of its review, the CMA will investigate whether the sector is competitive and resilient enough to maintain high quality standards.
The CMA said its review would examine three main areas:
· Choice and switching. Changes put in place by the Competition Commission appear to have strengthened competition between the big four firms – Deloitte, KPMG, E&Y and PwC – but the largest UK companies still turn almost exclusively to one of them when selecting an auditor to review their books.
· Resilience. The market study will examine what the role of the big four firms means for resilience – the risk being that each of the big four auditors is “too big to fail”, potentially threatening long-term competition.
· Incentives. Companies, rather than their investors, pick their own auditor. The CMA’s work will examine concerns that this might result in a lack of incentive to produce challenging performance reviews.
CMA chairman Andrew Tyrie, who has in the past described the Big Four as a ‘oligopoly’, said: “If the many critics of the audit process are right, it is not just the companies which buy audits that lose out; it is the millions of people dependent on savings, pension funds and other investments in those companies whose audits may be defective.
CMA chief executive Andrea Coscelli also commented: “High quality audit work underpins a successful economy and benefits us all. Given the in-depth thinking already done by the CMA and the Competition Commission before it, we plan to move swiftly and to issue our provisional findings before Christmas.”
The CMA added that if it found evidence the market was not working properly, it would scrutinise all proposals for tackling them.
Tyrie concluded: “Sir John Kingman’s independent review of the regulator is a big step in the right direction. And the CMA will now examine the market carefully to establish what contribution more effective competition could make to improving audit quality.”