The most common barrier to entry for mid-tier
firms looking to start working with FTSE350 companies is
the predominance of Big Four alumni among company
directors followed by heavy price discounting, PKF UK
has claimed as part of the UK Competition Commission (CC)
inquiry into statutory audit market concentration.

PKF UK told the inquiry that former Big
Four employees, who had become directors and audit committee
members in FTSE 350 and 100 companies, show a
definite bias toward selecting Big Four auditors.

The mid-tier firm also said that some loan
agreements contain so called “Big Four only” clauses, and warned
that even prohibiting such documents would still leave the system
open to informal bias, such as through private equity investment
agreements.

The CC was also told that PKF UK has
encountered an example of a Big Four firm discounting its
price by 40% in order to maintain existing public clients.

“For example, PKF was offered a job for a
public client but one of the Big Four incumbent auditors decreased
its fee by 40 per cent when the client was minded to award the
audit to PKF,” the firm told the CC.

When discussing solutions to current market
structure PKF UK was against measures such as the breaking up of
the Big Four and compulsory rotation of audit firms.

PKF UK backed the idea of shared
audits, but not the idea of joint audits.

The mid-tier firm also told the CC it could
audit quite a large number of FTSE350 companies and some FTSE100
companies.

“If the market opened up, its focus would
initially be on the FTSE 350, for example four in the first
year, before investing in staff and technical resources to
take on, say, 15 over a three-year period. PKF did audit companies
in the FTSE 350 but not to anything like this extent,” PKF said in
its statement in front of the CC.

Last week speculation emerged that BDO UK was
making a bid to acquire PKF UK in order to grow market share 
and close the gap between the Big Four and the mid-tier. Both firms
refused to comment on the speculations.

PKF UK’s testimony is one of the many
documents sporadically being released by the CC. The CC is expected
to hear and review many more stakeholder views before issuing a
final report sometime next year.