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August 24, 2018

Reports: Industry open to temporary client cap for Big Four

The Institute of Chartered Accountants in England and Wales (ICAEW) and nine of the largest networks in the UK plan to suggest a temporary cap in FTSE 350 audit clients for the Big Four to the CMA, the Financial Times has reported.

Criticisms of the current state of the audit market have grown louder in recent years after a number of high profile audit failures – most recently involving Carillion. Worries include the fact that the Big Four audit virtually all of the FTSE 350 companies between them, despite mandatory audit rotation, something a client cap would seek to address. 

Board members and heads of audit for the Big Four and BDO, Grant Thornton, RSM, Mazars and Moore Stephens have been meeting to come up with ways of avoiding an investigation by the UK’s Competition and Markets Authority (CMA) for some time.

Previously, it was reported that the Big Four would be willing to lend staff and technology to smaller firms, and potentially introduce joint audits.  According to the FT, these options are also still being discussed.

The potential audit client cap is a fresh revelation, and the paper added that while the precise terms of such a cap remain unclear, the discussions considered the idea of limiting the Big Four to 80% of the FTSE 350.

The results of these discussions are due to be presented to the CMA – whose chair, Andrew Tyrie has previously described the Big Four as an ‘oligopoly’ – next week.

When asked for comment, the ICAEW said: “These discussions were coordinated by the professional bodies (ICAEW/ICAS) and involved major firms within the audit market. The implications of possible changes to the audit market have always emphasised the public interest under which the professional bodies operate. The ideas resulting from these discussions will be shared with the CMA at a meeting next week’.”

The IAB and TA have contacted the firms mentioned for comment.

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