Mario Christodoulou, Accountancy Age, Thursday 20 May 2010 at 00:45:00

Big Four may have to prepare for increased competition in audit after Vince Cable appointed business secretary


Last Wednesday?s announcement that Liberal Democrat Vince Cable was now business secretary brought with it a glimmer of hope the audit industry may soon be opened up to greater competition.
</br> The decision brought smiles to partners within the city?s fifth and sixth largest accounting firms, who have long lobbied for greater competition and the chance to audit a greater portion of the UK?s listed companies.

Cable has been vocal on his desire to break up the Big Four accounting ?cartel? and open the door to increased competition, in particular from lower rung firms like Grant Thornton (GT) and BDO.
</br> ?We have this magic circle of top accountant firms. There is not enough competition,? Cable said last year.

During his election campaign he told newspapers he wanted firms like GT and BDO to compete alongside the Big Four. ?There is a second tier, of the BDO Stoy Haywards, who are desperate to get into this stuff. Why they?re impeded, I don?t know. But I have asked the Office of Fair Trading (OFT) to look at this, and they have agreed.?

An OFT spokesman said the issue was being looked at as part of a wider study into competition in the financial services industry.

Graham Clayworth, senior audit partner with BDO, said it was helpful to now have a figure in government supportive of greater competition.

BDO representatives met with Cable in the lead up to the campaign to press their concerns. ?Vince made some comments about competition before the election so he is clearly aware there is an issue,? Clayworth said.

Rival firm GT said the most significant issue remains restrictive banking covenants, which stop large, listed companies from employing a firm outside the Big Four.

Steve Maslin, the senior partner at GT, described Cable as ?engaged and sympathetic? to the competition issue.

?If we have a very senior figure like Mr Cable examining [audit competition], that might be a useful catalyst to make some of the banks and legal practices re-examine what goes on in that area,? he said.
</br> ?He clearly is an influential person and it is nice to deal with someone in that position who is interested in our particular sector.?

Greater auditor competition was once the goal of the Financial Reporting Council (FRC), under former chief executive Paul Boyle, but the board has shifted focus since Stephen Haddrill took over in December, concentrating on how to prevent a Big Four collapse.

Cable?s presence in the department of Business, Innovation and Skills, which would have to concur with any reforms, may renew the debate.

GT has previously estimated 20% of the 7,200 largest businesses in the G20 would be left stranded in the event of a Big Four collapse. However, listed companies are often limited in their choice of auditor, due in part to banking covenants and conflict of interest rules.

Any move to reform competition rules is likely to face opposition from the Big Four.

John Griffith Jones, chair*man of KPMG in the UK, told the Financial Times this week it was impossible to create a fifth player. ?You can?t. There are plenty of industries where there are four big players,? he said. ?The world just has to get on with it.?

Further reading:

Advisers warn of taxing times ahead with Lib-Con coalition

Osborne warned over hasty tax decisions

Break with the past? So start making sense