* Encouragement of auditor "rotation" seen likely
* Few expect radical steps to break up Big Four
* Findings will shape EU audit shake-up, U.S. debate
By Huw Jones
LONDON, Feb 18 The "Big Four" accounting firms
should find out this week how their grip on Britain's audit
market could be loosened in a ruling Europe and the United
States will scrutinise.
The Competition Commission launched its probe into the audit
market for the country's 350 top listed firms in 2011 but has
delayed its preliminary findings twice to this month. It said it
was hoping to make an announcement this week.
Britain's market mirrors the global sector with just four
companies - KPMG, PwC, Ernst & Young and Deloitte - checking the
books of 90 percent of UK listed blue chips.
The probe was partly prompted by a House of Lords inquiry
which found that listed companies, which must have their annual
reports signed off by an auditor, use the same accountant for an
average of 48 years, a figure the Big Four dispute.
The fear is that auditors become less sceptical over time
about what clients tell them. Policymakers were also angered
that accountants gave banks a clean bill of health just before
taxpayers had to rescue them in the 2007-09 financial crisis.
The Big Four's audit and advisory income easily outstrips
rivals: PwC had UK revenues of 2.5 billion pounds last year,
with Deloitte at 2.1 billion, KPMG 1.7 billion, and E&Y at 1.5
billion, according to Competition Commission figures.
In the next tier, Grant Thornton, which audits five of the
top 350 firms, brought in 377 million pounds, BDO, which audits
57 of the 350 top firms, 280 million, and Mazars 109 million.
So far the watchdog has found no evidence of collusion among
the Big Four but says they enjoy a "virtuous circle" of deep
experience, making it harder for rivals to break in. Many chairs
of company audit committees are former Big Four employees.
The Big Four insist competition is fierce, pointing to
downward pressure on fees, but the UK probe has sparked public
sniping between the big and small accounting companies.
"When reaching its provisional findings, the Competition
Commission should recognise that the large company audit market
currently produces competitive outcomes for large companies and
investors," PwC said. Ernst & Young, KPMG and Deloitte said they
would comment once the findings had been published.
The Big Four question why rivals should be given regulatory
help to increase market share and note that many big clients
doubt if the smaller firms could build up expertise fast enough.
Smaller accountants say that without public intervention,
there is no point spending huge sums to expand their networks.
Britain's audit policeman, the Financial Reporting Council,
now requires companies to consider changing auditors at least
every decade but smaller auditors want tougher measures.
These would include mandatory rotation of auditors every few
years, or joint audits, where a smaller firm teams up with one
of the Big Four, at extra cost to customers.
The watchdog could put forward incentives for switching
auditors rather than more radical, mandatory requirements.
"What we're hoping for is a package of interconnected
reforms that would help create a more level playing field,
giving additional firms a chance to prove themselves," said
David Herbinet, a partner at Mazars.
Whatever the Competition Commission decides, the preliminary
findings will be put out to public consultation, and there will
likely be global repercussions.
The European Union's approval of a draft EU law to inject
more competition into the sector has slowed in recent weeks so
there is time to take stock of the UK findings.
The draft law proposes mandatory switching or rotation of
auditors every six years and even a market share cap. The U.S.
audit watchdog has aired plans for auditor rotation as well.