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January 25, 2011

Newman calls for an end to Terco-style buyouts

BDO has called on governments to block Big Four firms from acquiring the next largest tier in its submission to the European Commission’s Green Paper.

BDO said it is concerned that small Big Four firms are seeking to acquire the mid-tier in economies where there are soft competition rules.

In the past year, Ernst & Young acquired Brazil’s largest mid-tier firm Terco, a former member of Grant Thornton International. “We suspect that such an acquisition would not have been permitted in many other countries,” Newman said.

“The G20 can be tougher. What happened in Brazil wouldn’t happen in any EU country. The EC paper and influence could put pressure and influence the G20 or the OECD to make some statements about this. Brazil is a G20 country and if the EU was to label such activity as completely unacceptable many more countries would follow its lead.

“Regulation will come in to place eventually. It is fairly clear that there are jurisdiction where they can do this and there are some where they can’t. They are just trying to get as much done as they can before regulation laws.”

Newman’s comments will be dismissed by the Big Four as an effort to protect BDO’s position as the fifth largest global network. While this may be true, if the largest firms outside of the Big Four are acquired, concentration in the audit market will become even more extreme.

What needs to be debated is whether regulatory intervention does more harm to competition than good.

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