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Auditors divided over how market concentration should be tackled

There is a divide among UK firm leaders on whether market concentration is a problem – an issue being debated in a House of Lords (HoL) Economic Affairs Committee inquiry.

Big Four firms like PwC have extremely strong market positions – the firm provides audit and assurance services to 37% of the FTSE 100 and 27% of the FTSE 250, according to PwC senior partner and chairman Ian Powell.

Despite this, Powell told the International Accounting Bulletin that there is still a large amount of competition in the market. However, as HoL committee member Lord Forsyth recently stated, audit firm rotation rates among FTSE 100 companies is, on average, every 48 years, while for FTSE 250 companies it is every 36 years, and 25 years for all other listed companies.

This indicates that opportunities to audit large listed clients are few and far between and if the Big Four dominate this sector it could be difficult for the mid-tier to break in.

Fit for purpose?

Powell thinks the audit market concentration issue needs to be put in perspective.

"[Audit is] a very complex product and the market does look at the scale and reach of the services it needs," he said. "As our clients have become more global and multinational, they have looked for that degree of coverage from the audit firms [they hire].

"The overriding principle is that this is a fiercely competitive market and clients and companies choose who they want to buy their services from.

"It is our job to make sure we provide really great service and quality. As people start looking at regulation, we think the right process is for the buyer of our services to have choice."

Grant Thornton chief executive Scott Barnes does not think concentration is a ‘massive’ problem but that the focus should be on what would happen if there was a failure among the Big Four.

BDO UK managing partner Simon Michaels said that if one of the Big Four were to exit the audit market there is a risk the audit industry would not be able to provide the services required, particularly among the FTSE 350, where the highest level of concentration exists.

He said it should be down to regulators, investors and the government to "sensibly" de-risk the market because market led solutions, such as the Market Participants Group, have failed.

Nicola Maher

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