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

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

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