Big Four firms are strongly opposed to being
split up to re-create a Big Six as a solution to market
concentration.

During a BBC Radio 4 programme, In
business, Called to Account, anchorman Peter Day analysed the
responsibilities of auditors during the financial crisis,
addressing the Big Four concentration issue and the regulators’
approach to enhance quality, including the EC planned reform on
audit, which includes, mandatory audit rotation, joint audits and
ban on non –audit services to audit clients.    

KPMG UK chairman Griffith Jones said: “You can
only have so many global players… The idea that braking Big Four
firms would not affect quality is questionable.”

Big Four firms have come under fire for having
audit contracts that run for many decades.

FTSE 100 companies’ representatives said the
reason for such long tenures and Big Four concentration among
listed companies is the international scope of these firms.

The FTSE 100 group said it supports the
concept of mandatory retendering but thinks mandatory rotation
would be difficult to achieve and costly, while potentially forcing
a company to engage with an audit firm that does not understand its
business.

BDO UK partner James Roberts said mandatory
retendering would be an effective tool to allow mid-tier firms to
enter the FTSE 100 market, which is currently inaccessible.

Institute of Chartered Accountants of Scotland
president Sir David Tweedie believes the solution to market
concentration will come “from a completely different
direction”.

“When I first started at the International
Accounting Standards Board, the American share of the global
world’s equity capitalisation was 52%. Now it’s 31%.  Asia was
15%, now is 33%, with China being a big part of that,” Tweedie
points out.

“In China, they have set up three huge
accountancy institutes and I suspect China will be keen to build
audit firms in the country and as their firms start spreading
around the world they’ll start looking for links with the
Anglo-American firms and you could see then mid-tier firms start
becoming the engine of that. This is how it will happen.”

Mid-tier networks are already partnered with
China’s largest domestic firms and the Chinese Ministry of Finance
is encouraging firms to merge and grow in size.

The auditors’
responsibilities

Regulators should look ahead at the future of
the audit profession when legislating, instead of implementing
rules that relate to the state of audit to date, Ernst & Young
Managing Partner Assurance Hywel Ball said.

“Ultimately we have potentially lost an
opportunity of actually looking to what should an audit be in the
future. Regulators [instead] are looking at the quality of the
audit how it has been for years and years,” Ball added.

On the same tone Griffith Jones said a greater
forward-looking element should be added to audits to prevent
another financial disaster.

“The auditors’ job is to report on the
historical numbers and the historical numbers were not the problem
[in the crisis]: the wave was coming from in front of us not from
behind. The problems were in the business models and in the
attitude to risk adopted,” KPMG chairman said. Changes are then
needed in order to enable auditors to play a greater role in
assessing risks taken by banks, KPMG chairman concluded.