Regulator: Big-4 auditors cramping competition

Large firms’ cosy relationships with the ‘big four’ audit companies means auditors are more likely to focus on satisfying management rather than working in the shareholders’ interests, the Competition Commission has warned.

In initial findings of an investigation into the audit services market, the commission discovered competition is being restricted by the big four auditors - PricewaterhouseCoopers, Ernst & Young, Deloitte and KPMG - who between them serve most UK listed companies.

According to the commission, auditors are too likely to focus on meeting the needs of senior management rather than shareholders, because the former are key decision makers on whether to retain the auditor’s services.

This suggests competition in the market focuses on factors that are not aligned with the demands of the primary customers; the shareholders.

The commission also found that more than two-thirds of FTSE 100 companies held the same auditor for more than 10 years, and one-third held the same auditor for more than 20 years.

A lack of competition is likely to lead to higher prices, lower quality and less innovation for companies and a failure to meet the demands of shareholders and investors, the regulator warned.

Laura Carstensen, chairman of the Audit Investigation Group at the Competition Commission, said: “We have found that there can be benefits to companies and their shareholders from switching auditors but too often senior management at large companies are inclined to stick with what they know, particularly when it is difficult to compare with the alternatives.”

Richard Sexton, head of reputation and public policy at PwC, said: “We are very clear that we report to the shareholders and engage with the audit committee as their representatives.

“We believe that the Competition Commission have grossly underestimated the critical role that audit committees play in protecting the interests of shareholders.”