Mario Christodoulou, Accountancy Age, Friday 22 October 2010 at 16:48:00

PwC attacks watchdog's suggestion Audit Commission could become next big firm

PwC has rounded on the UK?s corporate reporting watchdog over its suggestionthe Audit Commission could be transformed into a big-five audit firm.

Paul Woolston, head of public sector assurance at PwC, criticised theFinancial Reporting Council?s suggestion the Audit Commission be used to createa fifth player in the audit industry, currently dominated by the Big Four ? PwC,Ernst & Young, Deloitte and KPMG.

?It is at least ironic that the FRC has said what it has, in that the AuditCommission itself has operated with a large monopoly,? he said.

?It is odd that the FRC is concerned about any one organisation having themarket share.?
</br>In its submission to the House of Lords Economic Affairs Committee, the FRC hadstated the abolition of the Audit Commission could be used as a catalyst forgreater competition in the audit market.

?The commission?s in-house audit practice is the fifth largest in the UK?ifsecured by a non Big Four firm it would enhance their scale and strength and soreinforce their ability to compete,? the body said.

?Conversely, if the work goes to the Big Four, the reverse will be true.?

The Audit Commission, earmarked for abolition in 2012, is responsible for theaudit of 11,000 bodies, which together spend some 200bn of public money.

The commission received 213m in revenue in 2010, a slight reduction on the2009's 216m. The body distributes 30% of public sector audits between a handfulof firms, chief among them PwC which earned 12m in the last year. Fellow BigFour firms KPMG earns 11m and Deloitte 6m.

The firms have established public-audit departments and could benefit shouldthe work be put out to tender.

Woolston said further education colleges, NHS Trusts and former polytechnicswere examples where audit tendering had worked in thepast.

?I?m happy for other firms to compete. It would be for the clients andaudited bodies to decide what is best,? he said.

Public sector work would particularly benefit large audit firms. The auditseason begins in the second half of the year when private companies generallyfile their annual accounts. Public sector audits however generally finish inMarch. This enables audit firms to make better use of their auditors duringtheir ?down time? in the first half of the year.

The Audit Commission is also concerned the price of audit would rise if itwere put to the market, and smaller bodies, like Parish councils, would find itdifficult and costly to organise a tender process.

It has also suggested its fraud detection regime be handed to the NationalAudit Office.

The Department of Communities and Local Government must decide on a course ofaction in time for legislation to be drawn up next year.