MPs call for break-up of ‘Big Four’ accountancy firms

The Competition and Markets Authority (CMA) should aim for a “full structural break-up” of the ‘Big Four’ accountancy firms into audit and non-audit businesses, according to a new report by the Business, Energy and Industrial Strategy (BEIS) Committee.

The report, entitled ‘The Future of Audit’, endorses the CMA’s proposed operational split between audit and non-audit but argues that going further with a structural break-up would “prove more effective in tackling conflicts of interest” and “providing the professional scepticism needed to deliver high-quality audits”.

The report also tackles what it calls the “lack of competition” in the audit market and its impact on market resilience, with concerns that it could go down to a Big Three “or worse”. It says that in 2016-17, EY, PwC, KPMG and Deloitte (the ‘Big Four’ audit firms) accounted for 97% of FTSE 350 audits and 99% of FTSE 100 audits. To “improve resilience and choice”, the report recommends a segmented market cap and the use of joint audits, on a pilot basis, for the most complex audits to enable challenger firms to step up.

Rachel Reeves MP, chair of the Business, Energy and Industrial Strategy Committee said: “Change is needed to deliver for investors, workers and the public. The Big Four may not like it, they may seek to undermine the case for reform, but vested interests should not be allowed to get in the way of positive change. We must not wait for the next corporate collapse. Government and regulators need to get on and legislate to deliver these reforms and ensure that audits deliver what businesses, investors, pension-holders and the public expect.”

The CMA is set to deliver its verdict on the report shortly.