Grant Thornton and BDO UK have hit back at PwC
UK’s criticism of some of the views expressed by the mid-tier to
the UK Competition Commission (CC), which is currently
investigating UK audit market concentration.

The mid-tier firms said PwC UK
“misrepresented” some of the arguments made by the mid-tier and
third parties such as investor groups in its submission to the CC,
PwC Response to certain Third Party Submissions, issued in

“PwC has itself inaccurately mischaracterised
the evidence of Grant Thornton and sought to attack propositions
that have not, in fact, been made by Grant Thornton,” the firm
wrote in its response to the CC.

Grant Thornton said PwC’s suggestion that “In
fact the mid-tier firms themselves recognise that they have lesser
attributes and resources than the largest firms” is a
“disingenuous” comment.

“Firms such as Grant Thornton have been honest
in expressing the view that they have the attributes and resources
to audit most of the FTSE 350 currently. We do not believe it is a
rational argument that Grant Thornton cannot audit a FTSE 350
entity, that we demonstrably have the capability to audit, simply
because we do not currently have the scale to audit one of the UK’s
largest banks.”

BDO said the firm’s response did not imply
that “higher and sustained quality would be achieved if the
structure of the market were different” as claimed by the Big Four

“What we have said is that an improved market
structure would give more choice and would reduce the systematic
dependence on the four largest firms, and could lead to more
innovation in the market,” BDO explained.

Audit quality

Another clear instance of ‘difference of
opinion’ is with audit quality and the findings of the UK oversight
body – the Audit Inspection Unit (AIU).

Grant Thornton said PwC asserts that, contrary
to what is suggested by it and others, AIU reports do not provide a
comprehensive basis for assessing the comparative merits of
individual audit firms.

PwC bases its findings on audit quality and it being ranked high
among the Big Four accounting firms in a report by Copenhagen
Economics, which assessed the impact of the European Commissions
audit reform proposals. The asstment was commisoned by the Big

The Copenhagen Economics report states that more than 90%
of the AIU inspected Big Four audits were in the category “good
with limited improvements required” or “acceptable but with
improvements required”, while less than 60% of the inspected audits
from smaller audit firms were categorised in the same to top

Grant Thornton argues that the Copenhagen
Economics report “leans heavily on selective information taken out
of context based upon a single year’s AIU reports to suggest that
audit quality is highest at the four largest firms and that scale
leads to higher quality”.

“Grant Thornton and other global accounting
organisations have for many years maintained global audit
methodologies and robust systems of audit quality control, and
there is no evidence that Grant Thornton would provide audits of
any less quality than the largest four firms,” Grant Thornton
argued in its response.

The latest document released by the CC are
only a fraction and redacted version of the information that is
being gathered as details of the investigation and proceedings are
taking place behind closed doors.

The Office of Fair Trading referred the
issue of audit market concentration and lack of competition to the
CC for further investigation in October 2011, following the UK
House of Lords Economic Affairs Committee audit market competition
inquiry recommendation.

The CC is required to report on its
findings by 20 October 2013, although the body said previously it
will aim to complete the investigation in a shorter

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