Ahead of the UK’s Labour Party conference, which begins this weekend, the shadow chancellor John McDonnell told The Financial Times a Labour government would consider breaking up the Big Four.
McDonnell told the FT that there were numerous options under consideration by the party to curb the dominance of the Big Four, which he described as a ‘cartel’.
Some of the options considered include breaking up the Big Four, preventing them from conducting consultancy work, and setting a maximum audit market share for each firm.
While these may sound dramatic, they are hardly innovative. The Big Four themselves, along with other leading firms and the Institute of Chartered Accountants in England and Wales have held meetings over the course of the summer to address the problem of the lack of competition in the listed company audit market ahead of a potential enquiry by the UK’s Competition and Market Authority (CMA).
From the meetings, suggestions have been made by the likes of Grant Thornton for an independent body to be established to assign auditors to FTSE 350 companies. Other suggestions have also included introducing a temporary audit cap for FTSE 350 clients.
The problems with the UK’s audit market has caught the public attention over the last year due to the high scale collapse of Carillion, which in turn has caused demand for investigation into the Big Four and the UK’s accountancy watchdog, the Financial Reporting Council.
McDonnell told the FT that he would not make a final decision on the plans until he has received a report about the accounting industry which he commissioned professor of accounting at the University of Sheffield Prem Sikka to conduct.
Sikka has in the past been critical of the accountancy profession, responding to the Carillion report by saying the collapse was a reminder of the ‘crony capitalism that dominates Britain and how their cronyism is protected, shielded, facilitated by the world of accounting’.
