Big 4 Break Up? Competition watchdogs suggest accountancy firms shake-up

June 21, 2019

2 min read

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What's going on here?

The Competition and Markets Authority (CMA) has recommended that the Big Four accountancy firms should separate their professional services and audit work.

What does this mean?

In a desperate attempt to solve the ‘serious competition problems’ coming out of the UK audit industry, the CMA proposed a change in the law that would see an ‘operational split’ within PwC, KPMG, EY and Deloitte. Following these recommendations, the four accountancy firms are expected to keep their audit and consultancy teams at a distance by separating the boards, management and accounts of their two businesses. The goal is to put an end to speculation regarding the firms’ quality of work following some high-profile corporate collapses that arose from a failure to spot financial irregularities.

The audit sector reform does not stop there. The regulators are also hoping to beef up the competition within the audit sector by suggesting that companies should mix-and-match big four and non-big four audit firms when checking their accounts.

What's the big picture effect?

While the poor auditing has raised questions as to whether the Big Four are too big for their own good, suggestions from the CMA have stopped short of a full structural break-up. However, the pressing need for law reform may indicate that a future break-up lies just around the corner. Thus, the firms may have to embrace their contingency plans and begin preparing themselves for great change.

Some insist that the ‘operational split’ approach will adequately fix the sector’s competition woes. In theory, this method would improve the quality of audits by incentivising auditors to pay more attention to irregularities in their client’s account in order to hold on to their consulting business. Additionally, it would prevent the Big Four from relying on their extensive consulting services when looking for audit work. Yet, this approach remains divisive. According to Baroness Sharon Bowles, the split does nothing to ‘remove the common culture due to the shared central operations, systems, knowhow, staff use, branding and day-to-day contracts’. Thus, it seems clear that theory does not always march alongside practical reality.

Time will tell whether competition and performance are improving in the audit sector. For now, it seems clear that the Big Four’s days are numbered.

Report written by Josh L

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