NEWS | Big Four Special


BIG FOUR AUDIT SHARE SHOULD BE CAPPED AT 60% ARGUES


INDUSTRY BODY Other remedies include introducing


DONALD BRYDON LEADS


GOVERNMENT AUDIT REVIEW


The outgoing chairman of the London Stock Exchange is to head a new


government-commissioned probe into the future of the audit market amid a comprehensive overhaul of the profession


DoF HAS LEARNT that Donald Brydon, who will step down as chairman of London Stock Exchange Group (LSEG) next year, will be named on Tuesday as the chair of a piece of work codenamed “Project Flora”. The initiative’s scope will include examining the future of audit


as a practice and the quality of audit work in the UK. It will be an independent review, and separate to two inquiries which will announce


their findings on Tuesday led by the


Competition and Markets Authority (CMA) and Sir John Kingman, the former Treasury mandarin. Sources said that Mr Brydon’s appointment as “Project Flora’s”


chair would underline the extent to which the Business Secretary, Greg Clark, wanted a root-and-branch review of the audit market following scandals involving corporate failures at companies such as BHS and Carillion. The CMA is expected to recommend a series of remedies


including a cap on the number of large listed companies that the big four can audit, the adoption of a joint audit model for large listed companies and new steps to improve the accountability of companies’ boardroom audit committees – including giving regulators jurisdiction over them. The watchdog is expected to leave open the fallback option


of a wholesale break-up, which has been lobbied fiercely against by the sector’s biggest players: Deloitte, EY, KPMG and PricewaterhouseCoopers (PwC). Industry sources said the CMA appeared to have been convinced


by the industry’s argument that a full structural split between audit and non-audit businesses would be impractical on a UK-only basis. Instead, the CMA is likely to recommend a less radical separation


that would leave the firms intact but could nevertheless lead to the creation of separate boards of directors for the audit practices of the major accountancy firms.


DOFONLINE.COM DIRECTOR OF FINANCE 5 French-style joint audits, says ICAEW


THE BIG FOUR should have their share of large company audits capped at 60 per cent, according to the industry body for accountants. Such a cap would encourage mid-tier firms


into the market for auditing large firms, says he Institute of Chartered Accountants in England and Wales (ICAEW), responding to a Competition and Markets Authority


(CMA) review of Britain’s


embattled audit sector. Audit’s Big Four – Deloitte, EY, KPMG and


Price waterhouse Coopers – have been accused of having a cartel-like position dominating the market for listed companies, leaving smaller accounting firms unable to get a look-in. The collapses of government contractor Carillion


and retailer BHS have led to criticism of oversight provided by the sector. However, any such cap would need to offer the


Big Four with the prospect of enough business to keep them in the market, while encouraging challengers to invest in the capacity and resources needed to operate at this level. Restricting the Big Four to around 65 large


clients for any firm would be a workable alternative approach to a collective cap, added the ICAEW. This cap should be reviewed regularly, initially


aſter three-to-five years. Meanwhile, regulators could consider introducing


a French-style joint audit system to break the Big Four’s stranglehold on the top end of the market, says the ICAEW. It said there was “a risk that one of the Big Four


could either fail, or voluntarily withdraw” from the market for auditing the UK’s top companies if intervention is too heavy-handed. Under the French-style joint-audit system, two


or more auditors produce a shared audit report for which they carry shared liability.


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