Big Four lobby to prevent imminent industry reform
As they prepare to be grilled by MPs today, the heads of Deloitte, KPMG, EY and PwC have written to the Commons business committee to plead for the competition watchdog to postpone a planned overhaul of the audit market until the completion of a separate review by Donald Brydon, chairman of the London Stock Exchange, which has not yet started and is not expected to conclude for another year.
Britain’s biggest accountancy firms looking to stall the sweeping reforms to the industry, which will likely include a forced breaking up of their businesses.
Mr Brydon was commissioned by UK business secretary Greg Clark in December to investigate whether the work of auditors is good enough in the wake of a series of corporate failures, including BHS, Carillion and Patisserie Valerie.
While that review has not started, proposals already suggested by the Competition and Markets Authority include separating firms’ audit and consulting businesses as well as making big companies appoint two auditors instead of one.
The measures were a setback to the large accounting firms, which have lobbied hard against structural changes.
The heads of the Big Four auditors will be questioned by MPs tomorrow over Carillion and other similar disasters that have “highlighted glaring weaknesses in audit”, according to Rachel Reeves, chairwoman of the committee, who is leading a parliamentary inquiry into concerns about the accountancy industry.
The written submissions to Ms Reeves’ inquiry have raised concerns that the Big Four firms want to push back on what would be the biggest changes in a generation.
Prem Sikka, professor of accounting at the University of Sheffield, said: “The CMA’s reforms must not be postponed as audit quality and the audit market is in a dire state. The proposed reforms are mainly about competition and choice and are not dependent on a debate about the nature and purpose of audit.”
Tim Bush, head of governance at the shareholder advisory group Pirc, said he was concerned that the Big Four firms were trying to “kick the can down the road”, adding: “I think [the Big Four are] hoping the Brydon review changes the destination of the road.”
In Deloitte’s submission to Ms Reeves, David Sproul, chief executive, said: “The Brydon review will be of fundamental importance and its findings should be understood and considered in advance of any final decisions on reforms to the structure of the audit market.”