Top accounting firms’ response letters to the UK Competition Commission (CC) reveal a difference of opinion between firms, with the Big Four questioning and the mid-tier welcoming CC’s the key findings.
Big Four firms responding to the CC raised serious concerns about the evidence base for the provisional findings, with KPMG UK writing in its response that the firm believes the CC’s provisional findings would not be confirmed.
"The evidentiary basis for the provisional findings is unsound and the CC’s provisional conclusions contain material internal inconsistencies such that a finding of an adverse effect on competition cannot, on the balance of probabilities, be supported," KPMG wrote in a letter to CC.
Ernst & Young (E&Y) said in its response that it has a pervasive concern that the CC, "has not established clearly its concerns about the prevailing architecture, audit quality or any of the other features it has observed, have led, in practice, to adverse effects".
"Given the recognised importance of audit quality, we are also concerned that the CC has not considered the potential impact of the proposed remedies on audit quality. The CC should be cautious about recommending far reaching changes without stronger evidence of current adverse effects, and without having conducted a detailed examination of the potential impact of the proposed remedies on audit quality," E&Y said.
E&Y and KPMG echoed PwC’s concerns, which the firm made public a couple of weeks ago, saying the CC, "selectively used evidence in an unbalanced way to consistently reach findings that support the theories of harm rather than the conclusion that the market is functioning effectively".
While the Big Four questioned the provisional findings, the mid-tier players backed most of the CC’s thoughts, with Grant Thornton UK saying: "The findings of the CC set out in the provisional findings reflect concerns raised by many stakeholders about the structure of the UK large company audit market, and are broadly in line with our own direct experience and our observations on the operation of the wider market".
BDO UK said the CC has not addressed "the central question" of the investigation regarding "whether four suppliers are sufficient to serve the statutory audit market, particularly given the near total monopoly of the Big Four firms in the supply of audit services to FTSE350 companies".
"The existing levels of concentration in this market mean that each of the Big Four firms is "too big to fail", but we consider that the CC has given insufficient consideration to this scenario," BDO UK said in its response.
BDO UK’s response was similar to Mazars’, which questioned whether the CC investigation will lead to firms other than the Big Four gaining market share over the next few years.
The CC issued its provisional findings in late February and is expected to issue a final report with potential remedies to increase competition in the autumn.